Beige Book Report: San Francisco
December 10, 1975
In general our directors report that business continues to improve but at a very moderate pace. Retail sales gains over the Christmas season are expected to be about 10 to 11 percent higher than last year, which should generate some momentum as the new year begins. Many directors report a slowing of price increases and project a more stable price situation over the next six months. Industry voices little interest in plant expansion and appears to be extending the time horizon for a strong business revival. Residential construction is reported to have increased rather strongly in the last few months, while commercial and industrial activity remained weak. A significant increase in construction is not anticipated over the next six months.
Although estimates vary from gains of 7 to 20 percent, most of our directors believe that the Christmas retail sales volume will exceed the 1974 season by 10 to 11 percent. Since this volume will involve lost sales due to conservative stocking, some impetus to new orders might carry over to the new year. Retail merchants have noticed a decided diminution over the past few months in the rate of price increases for general merchandise and a rise in the level of consumer confidence. A large department store representative states that store prices "should trail the consumer price index by a couple of points." There is general support for the view that prices at the retail level will tend toward stability over the next six months.
On the industrial level, prices have been weak for metals and forest products. A director in the nonferrous metals business anticipates no significant change in aluminum prices over the next few months but believes that prices will rise in the spring as business expands. A large manufacturer of paper products states that "prices of our industrial paper products have been very stable in spite of increasing costs. Volume has picked up, and we expect prices to rise over the next six months in response to cost pressures." In the aerospace industry, a director states that price trends have, to a large degree, been influenced by the cost of labor as determined by cost of living escalation clauses. "The general expectation is that labor costs will rise at about 8 percent per year for the next couple of years." Petroleum refinery product prices have had mixed trends. There has been softening in the wholesale and retail prices of motor gasolines. Prices of distillates, diesel fuels, and natural gas liquids have been very strong; and residual fuel is in heavy oversupply with "no market at any price."
Except for beef and hogs, farm product prices have declined gradually since last summer. Bumper crops this fall have led to this development, and farmers are complaining about the embargo on wheat and feed grain sales to Russia since these commodities are expected to be in heavy surplus.
Residential construction is reported to have increased rather strongly in the last few months, while commercial and industrial activity remained weak. A significant increase from current levels is not expected over the next six months for either residential or commercial and industrial construction; multiple-housing starts are expected to remain especially weak.
In some areas, the outlook for construction activity is brighter than in others. The Seattle area continues to benefit from work connected with the Trident Project and Alaska pipeline construction. New office buildings, warehouses, and shopping centers are under construction. There has been steady growth in residential and commercial construction in the Greater Bakersfield Area over the past eight months due to the successful attraction of new industrial firms, and Idaho claims not to have been affected at all by the recent recession.
In many areas of the Twelfth District, vacancy rates are at relatively low levels, and thrift institution deposits continue to increase insuring sufficient mortgage funds to meet demand.