Beige Book Report: San Francisco
April 12, 1977
The recovery appears to be continuing in the Twelfth District, although capital investment is increasing in only a few industries. Retail sales as well as sales of a number of manufactured goods are strong and employment is generally increasing. Low crop prices and drought-induced cost increases have hurt both farm income and agricultural employment. Housing demand and construction activity in general are very strong and a few lending institutions have raised their mortgage rates by 1/4 of a percent.
Retail sales are reported strong in many areas and at least two major shopping centers are under construction. Retail business is reported to be an important source of commercial loan demand.
Sales of a number of manufactured products are also reported strong. Lumber sales are rising due to the housing boom. A major aerospace firm in the Pacific Northwest is experiencing brisk sales of commercial aircraft and expects to expand employment by about 10 percent during the year. To increase mileage ratings, the auto industry is switching from steel to lighterweight aluminum to the delight of Western aluminum fabricators who are currently operating at full capacity. Some primary aluminum capacity in the Pacific Northwest has been shut down due to drought-related curtailments in hydroelectric power. There is some fear of severe aluminum shortages next year. Mineral sales in Utah are good, with mineral production having exceeded a record $1 billion last year.
Mild weather has stimulated tourism in Washington, but has severely hurt the ski industry in most Western states. California's ski resorts however, were aided by March snow which brought business almost back to normal.
There are very few bright spots in Western agriculture. Despite some rainfall in all states in March, reservoir levels remain very low causing severe cutbacks in irrigation deliveries, amounting to as much as 60 to 75 percent in California and 94 percent in one portion of Washington. There is great concern over the survival of vines and fruit trees in Washington's Yakima Valley. It is expected that ranchers in Utah will bring sheep and cattle to market in large numbers as range conditions grow worse. And on top of the drought problems, it is reported that the prices of a number of farm products (wheat, corn, rice, sugar beets, potatoes and cattle) are currently below the cost of production. On the retail food scene, there appears to be another supermarket price war taking shape in the Los Angeles area.
Housing demand and overall construction activity are reported strong throughout the district. Mild weather has allowed construction activity to exceed normal seasonal levels, and construction employment is reported to be increasing. The housing market is still exceptionally strong, with used houses selling within a few days of being put on the market, and housing prices increasing 75 percent over the past year in some parts of Southern California. A major Indian Reservation in Oregon reports very active housing demand and construction activity. Activity is not confined to the residential market. Demand for commercial and industrial property is also strong. In Southern California, $75,000/acre is now considered inexpensive for industrial land.
Employment is on the increase in most parts of the District, especially in construction, wood and paper products, aerospace, and aluminum. Partially offsetting has been a general decline in agricultural employment. For example, the agricultural work force declined by 5,600 during January in Kern County, California alone. A large clothing manufacturer in Oregon was forced to layoff a large number of workers when sales of its summer clothing line failed to materialize. But there appears to be a broad upward movement in Western employment.
Banks report that business loan demand is increasing after a period of remaining flat demand during the first quarter, but they expect even greater strength in the third and fourth quarters. Mortgage, construction and consumer loans are reported strong, but business loans are generally static and agricultural lending is generally weak. Still, a few areas are facing strong business loan demand. One banker from Southern California claims no need to even seek borrowers and a northern Washington banker anticipates a shortage of loanable funds before year-end. The frenzied demand for housing has driven mortgage rates up by 1/4 of a percent in parts of Southern California and Utah.