Our directors continue to expect a slower rate of growth in the economy in 1974. Some sectors and regions continue to exhibit considerable strength, but the overall view is one that is cautious about prospects. The energy crisis is a major element contributing to uncertainty, but at the moment the effects in this District are minor. Consumers appear to be spending somewhat less on durables; automobile sales are much lower. Overall, consumer spending is being maintained. Agricultural forecasts remain good, and capital expenditures continue at high levels. The consensus is that 1974 will exhibit little growth and the inflationary pressures will persist.

Automobile sales are slow and dealers are reducing staffs. Standard-sized cars are not selling well and inventories are larger. In contrast, sales of compact cars are excellent and would be even larger except for difficulties in getting deliveries. Recreational vehicles and boat sales are also low. Consumers are apparently spending less on durables, but the declines are not substantial. There are reports that consumers are economizing, and demand is shifting, as one director described it, to staples and away from frills. Items such as sewing machines and, in a few areas, refrigerators and furniture are selling well. Retailers are not revising their inventory policy to any extent. Some are cutting back, but others are actually increasing orders in expectation of higher prices and shortages.

Residential housing shows no sign of recovery. High prices and interest rates are continuing to discourage buyers. The price and wage increases of the past year have forced large increases in the selling prices of new houses. In southern California, one developer is reported to have had to increase the price of one model by $17,000. over a year ago (from $42,000 to $59,000). The high price of houses has strengthened the demand for mobile homes, and production is increasing. Commercial building activity reflects the strength of business investment expenditures, and it is holding up well. In Tacoma, activity connected with the World's Exposition being held in May to October this year has supported up the local construction industry.

The agricultural outlook is very good. Fertilizer may be in short supply and result in higher costs, but directors in agricultural areas of this District think that net farm income will equal or exceed the record levels of 1973. Weather conditions are good, and excellent crops are expected.

Capital expenditures by business show no sign of slowing. In Utah, the local power company announced $94 million in new construction in 1974, and Kennecott Copper has started a $150 million refinery. In Washington, Pacific Car has received a large order for railroad cars, and Weyerhauser has announced major expenditures for new plants. Boeing Aircraft still has a large backlog of orders, and it expects no decline in output. Banks in California forecast that strength in electronics, instrumentation and machinery will maintain the State's level of activity above the national average.

The energy crisis has had limited impact in this District. Gasoline supplies are in short supply only in a few areas, but concern about shortages has adversely affected tourism. Electric power supplies are in surplus in the Pacific Northwest and in Idaho-Utah. The most important power shortages are in southern California.

Bankers report that business demand for loans is strong but that declines have been occurring in consumer and mortgage lending. Short-term rates have been declining and a moderate decline is expected to continue. One large bank, which had expected a trough in short rates in midyear, now expects a moderate decline, but with the low point being reached at yearend. Some banks are also becoming concerned with the quality of credit to automobile dealers, recreational vehicle manufacturers and housing developers.