Beige Book Report: San Francisco
December 15, 1976
According to this District's directors, there was little change in the pace of the economy over the past month. Retail sales continued to show small gains in both durables and nondurables categories. Demand has been strong for large cars and pickups, but sales of small cars have been disappointing. Industrial strength has been spotty with new orders for steel, aluminum and paper products flat while orders for lumber products and electronic equipment were reported to be very strong. Residential construction activity is rising fast with new housing starts in some areas doubling last year's rate. Plans for new plant construction remain on the drawing boards while manufacturers await firmer assurance of the economy's direction. Reports from the agricultural sector are mixed. Fall planting has been completed, but there is widespread fear of drought.
On the evidence of reports from Twelfth District directors, the trend in consumer spending is sloping upward in small increments. Large automobiles and pick-ups are selling well, but small car sales have been disappointing on a broad geographic front. Personal loan activity has been soft except for home improvement loans and loans to consolidate debt. In those areas where personal loan volume is rising, the number of loans has generally remained level with last year, but the amount borrowed has increased indicating the effect of inflation.
Producers of aluminum, steel and chemical coatings report that orders have been flat over the past month and operating rates unchanged; new orders have been reported as slipping by a large saw chain and power tool manufacturer, a sportswear manufacturer, producers of consumer paper products and agricultural machinery. On the other hand, the newsprint business has been working at capacity and domestic orders have surged in the electronics industry. Moreover, forest products companies are reporting heavy order inflow with momentum gathering for the past two to three months; the plywood and lumber industry has been operating at capacity for the past 90 days. Inventory accumulation is not adding substantially to the thrust of the recovery as manufacturers continue to pursue cautious policies.
Most of the strength in the lumber industry is attributable to the current surge in residential construction. In some areas, housing starts have doubled from the year ago rate. Savings flows at Western savings & loan associations continue very heavy and banks are showing renewed interest in granting mortgage loans as a result of the creation of a strong secondary market.
Loans for plant expansion are reported to have picked up slightly over the past five months relative to the previous fifteen months, but large outlays have been postponed in order to assess "the Carter effect." "There is an attitude prevalent among businessmen that it is less risky to be a little late coming on with additional capacity than it is to be caught with a low level of capacity utilization and the added burden of new capacity in progress. Plans for significant capital expansion exist, but they are tightly controlled and are highly susceptible to constraint at the slightest negative turn in economic news. Nonresidential and heavy construction awards in District states are running 12 percent below last year.
In agriculture, the fruit crop has been harvested and farmers acknowledged a good crop and "pretty good prices this year." Potato processing is enjoying strong demand with large orders from Japan for potato flakes. Sugar beet processing is "in full-swing and the run is considerably ahead of 1975." The dairy business is making a comeback with milk sales "magnificent." Turkeys bought at 48 cents per pound in August are selling in a price war at 43 cents per pound in national and regional supermarket chains. Due to the raisin crop failure, prices are up to $1,050 per ton from $647 per ton last year.