In the opinion of our directors, economic conditions appear to be worsening and recovery is not expected until late 1975. Both businesses and consumers in the Twelfth District are cautious in their spending plans. The major exception is in agriculture where incomes have continued to rise and 1975 is expected to be a good year. The most depressed industries remain residential construction and the timber industry.

Our directors do not expect any major improvement in general economic conditions until late 1975. They are concerned about inflation and the probable course of economic policy. Some directors think companies are putting up prices in expectation of the imposition of price controls.

Housing shows no sign of recovery and prospects are gloomy. In consequence, demand for builders' materials and timber is low. The cutbacks in timber and plywood production have resulted in more mill closings and are a major factor behind rising unemployment in the Pacific Northwest. On the other hand, pulp and paper producers, who are more dependent on general demand, are maintaining production although signs of weakness are beginning to appear.

The strongest sector in the Twelfth District is agriculture. Farm incomes are high and farmers are optimistic about their long-term prospects. The only weakness is in cattle where the high cost of feed has put feed lot operators under a severe profits squeeze. Until grain prices fall, no relief is expected for this situation. Otherwise, because of strength in agriculture, regions such as eastern Washington, central California, Idaho, and Utah have escaped most of the downturn experienced elsewhere. Utah is also benefiting from the strong demand for minerals and particularly from efforts to increase coal production.

Consumers' attitudes are shifting toward greater caution in the face of prediction of a recession. Sales of consumer durables have fallen and wholesale distributors are facing a serious inventory liquidation problem. Retailers are pessimistic except in agricultural areas. The demand for automobiles has fallen even more, as higher prices of new cars have reinforced consumers' reluctance to spend. Sales for some dealers are reported to be 40 per cent below the same period a year ago, although the average decline seems to be nearer 20 per cent. Large to medium-sized models are experiencing the greatest sales declines. Sales of compact and luxury cars show considerable local variation and some dealers report satisfactory sales. Small cars, loaded with extras, are selling moderately well, and truck sales are reported higher. Nonetheless, the overall automobile picture is unfavorable.

In contrast, there are industries which are doing better than average. Production at Boeing is a major source of support for the Seattle-Tacoma economy. This area is also benefiting from activity in shipbuilding and in shipping connected with the construction of the Alaska pipeline. Food processing was strong in California in the past several months and, given normal seasonal patterns, 1975 should be a good year. Electronic component industries are experiencing an easing of demand from recent highs but they should do reasonably well in the year ahead. Capital goods suppliers for electronics, pulp production, and energy-related industries are carrying substantial back orders, but in view of the overall economic prospects for 1975, these producers are not expanding capacity.