Our directors report the slowing of economic activity in the Twelfth District is likely to continue into 1975 before any recovery begins. The weakest sectors are housing, lumber, and autos. Sectors such as agriculture and electronics remain strong, and consumer spending is steady except for a decline in automobile purchases. Bankers report some weakening in loan demand. With the exception of agricultural areas, our directors report that their local economies are weaker. Residential housing construction shows no evidence of improving, and one large California bank suggests that housing might even decline further during the coming months before recovering. Nonresidential construction, in contrast, has been maintaining a good pace, but the backlog of work is becoming smaller. Increases in bankruptcies among subcontractors have become more common, and the unemployment rate among construction workers in Southern California is about 30 percent.

Because of weakness in construction, District lumber and plywood producers have cut production and, in some cases, closed mills. One exception to this situation is that demand for laminated wooden beams, which substitute for steel, is excellent. Paper mills, which are dependent upon general demand, are still having a good year, but there have been some indications of reduced demand. Consumer spending is relatively satisfactory in most categories, with the exception of automobile purchases. Most of our directors think that the automobile industry will have a depressed year. Electronics manufacturers and other high technology industries are still maintaining high levels of employment.

Agriculture in this District has escaped bad weather and has had another good year. Crops have been excellent; and where average yields have been lower, increased acreage under cultivation resulted in greater total crops. Grain prices are high; and potato prices, although somewhat below earlier levels, are well above those of a year ago. The only weak sector in agriculture appears to be livestock.

The slowing of the general economy is being reflected by improved supply conditions. Supplies of steel, in particular, appear to be better. Foreign mills are quoting prices very close to those of domestic mills. Unless there is a long coal strike, most steel products are expected to be available with reasonable procurement lead times and at lower prices by year-end. Basic petrochemicals and vinyls also are becoming readily available and at lower prices. Prices of vinyls are lower because of falling demand by domestic automobile manufacturers.

Buyers are reported as being more cautious in responding to greater availability and lower costs. For example, a steel supplier in Washington had been informed of a doubling of his quotas on certain items, but in light of expected declines in demand, he was reluctant to expand his inventory. Buyers are described as buying on the basis of "need," and inventories are being held down.

Demand for agricultural equipment is, however, still strong, as farmers are continuing their purchases. Farm machinery is now more readily available, but inventories are still low in the face of heavy buying. Continued shortages are reported for fertilizers and certain classes of prefabricated materials. The situation for gasoline is mixed. In Southern California, allocations to independent dealers recently have been reduced, but satisfactory supplies are reported in other parts of the District and prices have declined somewhat.

The demand for bank loans has eased and is expected to fall somewhat further. In particular, the demand for business loans is lower in most areas. To some extent, large borrowers are preparing to return to the capital markets and preparing to rely less heavily upon bank financing. The demand for real estate credit is strong, largely because of the absence of activity by savings and loan associations. Where they have gained funds, associations are apparently trying to rebuild liquidity, and they are following conservative lending practices. Loans are made primarily to established customers for refinancing. Despite continued increases in recent months, bankers expect that consumer credit demands will ease. In addition, some directors are concerned with the possibility of increased consumer loan delinquencies after the end of the year.

The directors continue to be concerned with inflation, and they do not want an easy monetary policy. Nonetheless, some easing is desirable, and a somewhat less restrictive monetary policy is preferred.