Beige Book Report: San Francisco
September 12, 1979
Economic strengths continue to overshadow weaknesses in the nine-state area served by the San Francisco District, although many firms are becoming increasingly cautious about the outlook. Capital spending plans for both the immediate and longer-range future have not been altered by fears of recession. Hiring continues strong in most labor markets of the district. Retailers report relatively strong sales, but have become cautious about future sales, especially in Southern California.
A large Washington bank reports that the Northwest is still experiencing very rapid economic growth. A large metals firm says that its capital-spending plans remain unchanged, and that its capital spending in 1980 should exceed even its 1979 record. A Southern California utility reports that the expected slowdown in the housing market has been built into its regional-growth estimates and financial plans. And a major aircraft producer reports that the crucial aerospace industry—a "lagging indicator"—has not been measurably affected by the economic downturn.
Inventories at the manufacturing level have remained relatively constant. Most retail firms are watching their inventories closely, and are attempting to keep them quite lean.
Southern California retailers appear to be feeling more of a pinch than most Westerners, and are becoming increasingly concerned about further softening in sales trends and overaccumulation of inventories. Some of these retailers are scaling back orders for the Christmas season, with the expectation that holiday sales will be weak to mediocre. Financial institutions involved with auto-dealer loans are watching their dealers more closely, mainly with regard to their stocks of unsold cars.
Employment continues high in the West, with demand for skilled labor skyrocketing, as measured by a continued high volume of help-wanted ads. In Utah and Idaho, businesses are complaining that they can't find enough applicants for available positions. Academic institutions in the Northwest continue to experience significant shortages in the supply of clerical support staff. And a Los Angeles food-products firm finds very few qualified people available to fill recurring vacancies in good-paying positions.
Hiring programs remain strong at Northwest aluminum plants, where operations are running at maximum capacity. Similarly, the Southern California aircraft industry, which has a substantial backlog, continues to hire aggressively. In fact, employment demand remains strong in all components of the regional aerospace industry. Demand is also high for workers on commercial construction projects throughout the West.
Current bank-lending practices remain relatively unchanged, after having been tightened several months ago. Loan demand has continued very strong, while the availability of loanable funds has tightened in comparison with earlier years. Because of rising loan-to-deposit ratios, many bankers are curtailing real-estate lending activities, and are closely scrutinizing the quality of all existing credit lines.
Commercial-loan demand is still strong, reflecting the sustained high levels of business activity. In general, banks have been willing to accommodate the demand for short-term business loans, and in Los Angeles, banks are continuing to compete keenly for this type of loan. In the area of real-estate lending, however, banks are exhibiting a healthy degree of caution. Still, the availability of mortgage credit has held up quite well in the West, although interest rates have escalated to new highs. Installment-loan volume is beginning to soften because of both the energy problem and the softening in auto sales. In view of rising consumer-debt ratios, many Western financial institutions are placing additional emphasis on consumer-loan quality.