Despite the problems associated with the energy crisis, the majority of our directors expect only a slowing of the economy this year but no serious recession. Consumer spending for nondurables and business capital expenditures are strong, and District agriculture is also likely to experience another prosperous year. The major weaknesses are in housing and consumer expenditures for durables and automobiles.

The energy crisis has had little impact on this District's employment and output as yet. Some directors report shortages of some classes of raw materials, and manufactured goods are just as important, as energy shortages in restraining output. For example, lack of resins are slowing plywood production, and petrochemicals and some metals are in short supply. The energy problems in the District are largely limited to sectors dependent upon gasoline supplies. Therefore, automobile sales are lower, and layoffs have occurred both in assembly plants and at the dealer level. Manufacturers of recreational vehicles are particularly hard hit, a "disaster area" according to one director. Airlines are another industry which has been reducing employment. Nonetheless, these sectors represent a minor fraction of total employment and the overall level of employment has not changed much.

In states such as Oregon and Washington, recent rains have eliminated previous power shortages, and these states have surplus power. Industries such as aluminum smelting, which had been on part-shifts, have been able to increase output and employment.

Forest products in the Pacific Northwest are experiencing strong external and domestic demand. The reduction in housing starts has been partially offset by higher demand in orders for various paper products as a substitute for plastics which are in short supply.

Utah and Idaho similarly expect no power shortage. Ninety percent of the region's power is generated from plentiful low-sulfur coal, and utilities are able to export their surplus to other states. The principal shortage of energy in this District appears to be in gasoline, but this is limited to a few areas, such as Arizona and Oregon. A major factor in the Oregon situation has been the decision of two oil companies, Gulf and Amoco, to close their stations in the state. In contrast, independent dealers in Idaho are in an "oversupply position". Although California appears to have sufficient gasoline supplies, there would be more economic dislocations if the proposed 35 gallon monthly ration is imposed in areas dependent upon the automobile for transportation. Los Angeles would be especially hard hit by rationing. The Los Angeles area also appears to face a more serious power shortage than the rest of the state. Mandatory cutbacks have been ordered.

Our directors described various efforts of business to save power. Forest products firms are burning previously discarded waste products; Georgia Pacific expects to save in 1974 energy equal to 200 million gallons of fuel oil by its program of utilizing wastes. The general response of business has been to reduce lighting, especially for display purposes, and to lower heat in buildings. Christmas retail sales were higher in most areas. Business capital expenditures remain strong because of continued efforts to modernize and to expand capacity to meet expanding demand. Commercial construction is maintaining a high level of activity, but there is no sign of any recovery in residential housing. Spending on consumer durables is expected by several directors to be lower this year, and automobile sales are also likely to fall more.

Agricultural prospects for 1974 remain good. High prices are expected-record highs were reported for Idaho potatoes-and farmers are increasing planted acreage of most crops. Net income of farmers, however, may be reduced somewhat by rising costs of such items as fertilizer and machinery which remain in short supply.

Bankers are experiencing continued growth in deposits, and they face strong loan demand particularly by business. Short-run interest rates are expected to decline slightly, but little change is seen for long-term rates.

In summary, although some directors are uncertain about the effect stemming from possible energy shortages, the majority expect only a slight slowing in economic activity. For the moment, shortages of energy have not had a significant effect on the District economy.