Beige Book Report: San Francisco
December 14, 1977
The Twelfth District remains in relatively good health. Retail sales exceed year-ago levels by double digits in many parts of the district and only in the depressed agricultural machinery sector do inventories exceed desired levels. Among district industries agriculture remains weak but struggling and construction remains strong but moderating. A survey of wage increases reveals the average rise in labor costs is running at about 7 to 8 per cent. In the banking sector, consumer lending keeps pace with strong retail sales while commercial lending limps behind.
Retail sales appear strong in all areas of the district. In the Seattle area, the settlement of the Boeing strike has perked up sales to 10 per cent above year-ago levels. The greatest strength there is said to be among costlier items such as stereos, cameras, microwave ovens, video-games, TV's, washers and dryers. Oregon retailers use mainly superlatives when discussing their Christmas season sales, and double digit increases over last year's levels appear to be the rule. One area of Utah reported retail sales running about 14 per cent above a year ago. Reports from Southern California peg retail sales at 10 to 15 per cent above last year. The only specific weaknesses reported were in auto and truck sales in Washington, Idaho, and parts of Southern California. Truck sales were said to be down because of depressed farm incomes, and auto sales down because of consumer resistance to higher prices. However, this latter phenomenon was spotty since several areas reported auto sales to be strong. The only less-than-optimistic reports on general retail sales came from bankers in rural areas, where farm incomes have been squeezed between drought related costs and low crop prices.
The only reports of undesired inventory buildups come from the agricultural sector where sales of new farm machinery are very slow and dealer inventories have grown quite large.
The health of district industries remains generally strong and even agriculture is doing its best to adapt to a difficult situation. It is uncertain whether the California drought has ended—one very good storm has generated some hope, but rainfall for the rainy season (which began October 1) is still below normal. Farmers have taken a number of measures, such as changing crop spacing and shifting from spray or flow to drip irrigation, to significantly reduce the water input to crop production.
Construction remains strong in many areas, but the rate of increase is beginning to moderate in some. Kern County, California reports very strong growth in both residential and non-residential construction, while requests for building permits have slowed in five southern California counties. At the other end of the west coast in Washington, the real estate market is reported to still be booming. One other economic bright spot lies in the Sierras where that November storm allowed the ski resorts to open on Thanksgiving for the first time in three drought-ridden years.
When asked about wage increases for the coming year, our directors' estimates seemed to converge in the area of 7 to 8 percent. On the high side are: the Boeing settlement with a first year increase of 9 to 12 percent, the aluminum settlement with a first year increase of 14 percent, and the Oregon forest-products agreement where the second year increase beginning June '78 is 11 percent. Northwest steel workers have been on strike for four months and are holding out for an 8.7 percent increase. On the low side is the Oregon construction sector with a June 1978 wage gain between 3.6 percent and the change in the CPI, the Northwest metal industry which just negotiated a first-year increase of 7 percent, and the Southern California natural gas industry which expects its March negotiations to yield a 7 to 8 percent wage gain.
In the banking sector consumer lending continues strong while commercial lending limps behind. In Salt Lake City, consumer lending is said to be keeping pace with retail sales— i.e., about 14 percent above year-earlier levels. One Washington bank reported installment loans to be running almost 70 percent above year-ago levels, while an Idaho bank noted consumer lending was proceeding at a seasonally normal pace. Banks in both Oregon and Southern California report consumer lending to be growing more rapidly than the normal seasonal pattern. Installment lending at one large California bank increased at the following annualized rates: 34 percent during the first 9 months of the year, 21 percent October over September and 13 percent November over October. Its president inferred from this that consumers were becoming more cautious after their debt levels had risen to such high proportions of their incomes.
In commercial lending, only one Oregon and one Utah bank reported real strength. The more typical report was one in which there was a seasonal pickup in commercial lending to finance Christmas inventories. However, one Oregon and one large California bank claimed not to even be experiencing the usual December bulge in such lending.