April 11, 1979
A picture of general "good health" prevails in the western economy with business strong across the board. Commercial and non- residential construction is moving ahead sharply, the forest products and aluminum industries are booming, smaller-economy auto and truck sales are way up, mobile home sales remain good, retail sales are very strong, dairy and crop production yields and prices are higher, and employment is generally good with unemployment low in most areas.
Several pressing problems do exist in the area of petro-chemicals where the volatile Iranian situation and OPEC price increases have led to oil/gas reductions, shortages and higher wholesale/retail prices. It is possible that the energy situation may affect food chain enterprises, fast food restaurants, motels, tourism and other gas-related industries. Though tight, the situation is not yet disastrous in the West.
Inflation pressures continue to be felt, with overall loan demands down slightly, money market certificates (MMC) exceeding expectations with the interest-rate-conscious consumer public, and residential real estate construction and sales declining as buyers continue resisting higher price tags and high mortgage costs. A particular exception to the downward trend in housing is the Los Angeles County area, where the housing market is thriving. Residential building permits in the area are up a strong 17 percent, as compared to the general decline of 11 percent in California. Los Angeles housing starts in both single- and multi-family dwellings have shown a substantial increase in the entire first quarter of 1979.
Some analysts have expected supply bottle-necks to develop, especially with the Teamsters Union and United Airlines strikes in progress, but only minor spot shortages and difficulties in obtaining equipment and/or materials have resulted to date. While truck deliveries are taking longer, it is usually a lack of stock- on-hand in all product lines that has "lengthened" delivery times for manufacturers, distributors and local contractors. But, generally, delivery schedules have been this lengthy for a long time, one director reported. A fairly tight supply situation has existed in such areas as office furniture, paper, trucks, truck accessories, forklifts, and cement. But other areas such as bank equipment, clothing, and electronics products have had no supply problems—and don't expect any. If the strikes continue, it is expected that delivery schedules will continue to lengthen and that shortages of materials could be created.
Spending on consumer durables in the West has been affected by the high rate of inflation, high interest rates, decreases in disposable income, current wage guidelines, petroleum shortages, and home construction declines. The demand for such items as recreational vehicles, power boats, new furniture, rugs, and white goods is expected to be slow and sluggish during the current year. The longer the negative factors remain, the greater the impact will be on future movement of consumer durables.
The Twelfth District, as expected, has experienced a shift of money market certificates (MMC) accounts to banking institutions, following the March 15th advent of regulatory changes that eliminated the rate differential favoring thrift institutions. But the limited data available for late March do not guarantee that a major, long-term trend away from Savings and Loans has occurred, when the data are compared with the weekly inflows of January, February and early March 1979. With some exceptions, there appears to have been a gradual but steady increase in the rate of MMC growth in most banks since March 15th.
The Farmers and Merchants Bank of Central California, which had experienced a decline in the rate of MMC growth from January 1 through March 15, reversed that trend dramatically following the regulatory changes. Their MMC rate of increase for the last half of March was 109 percent greater than the first half of the month. Similarly, the First National Bank of North Idaho reported that MMCs have had a significant impact on their March business with MMCs representing 12.5 percent of their total time deposits and 21.8 percent of their total Time Certificates of Deposit, as compared to 11.6 percent and 20.3 percent in February. Obviously commercial banks are benefiting from being on equal terms with Savings and Loans and mutual savings banks, with respect to the interest rate that can be paid on MMCs. The loss of competitive advantage by the thrift institutions is allowing banks to gain a larger share of the MMC market. A continuing shift from regular passbook savings into MMC instruments is expected.