Beige Book Report: San Francisco
October 10, 1979
The economy of the twelfth District continues to be relatively immune to recession. Consumer spending, construction activity, industrial production, and employment remain at healthy levels. Weakness in specific sectors such as residential construction and motor-vehicle manufacturing appears to be largely offset by the strength of the commercial construction, aerospace, and electronics industries. Loan demand remains strong and loanable funds continue to be available as the result of deposit inflows, money market certificates, and access to the Eurodollar market. The employment and production outlook is optimistic, but price and wage inflation is widely reported.
Consumer spending in the District continues to be strong. Retail sales were generally higher in August in comparison to a year ago, although inflation has contributed to this trend. Sales of small appliances and back-to-school items were reported to be particularly vigorous. The weakness in the sale of automobiles is associated primarily with slack demand for 4-door sedans, recreational vehicles and 4-wheel drive vehicles; small car demand is extremely strong with delivery on some units taking as long as six months.
The demand for single-family homes in the District is very strong, for both higher priced homes and those priced below $100,000. An exception to this pattern is reported in the southern California area where higher priced units are remaining on the market longer than previously. The effects of the energy shortage earlier in the summer linger in the tourism area. Altered vacationing patterns have weakened demand for recreational vehicle camping and tourist spending on souvenirs, restaurant meals, and other discretionary items associated with touring. Hotel occupancy rates, however, appear to have recovered from their weak position earlier in the summer.
Depressed residential construction activity appears to be more than offset by a high pace of commercial and industrial construction. In Oregon, for example, single-family-building permits are down 26.7 percent, but significant activity is reported in plant and equipment expansion, industrial park development, and office building and motel construction. Several areas in the District report shortages of skilled labor and materials in the construction industry, and the forest products industry is healthy. These developments reflect the net stable position of building activity. Prices of materials and labor continue to rise, however.
Activity in the electronics, aerospace and forest product industries in the District continues to provide strength to overall industrial production and employment figures. The Northwest economy in particular is still considered to be "booming" and national trends in unemployment are barely visible. Employment in Washington, for example, is reported to be growing at two and a half times the national rate. The weakness of national industries, however, is reflected in some regional sectors. A manufacturer of steel strip and blanks, for example, cited a slowdown in sales to the Detroit automobile industry. Furthermore, the August increase in unemployment of 92,000 workers in California can be traced partly to declines in the motor vehicle, transportation, utility, and nondurable goods manufacturing industries. Recalling the 1974/75 experience, producers are reluctant to build large inventories and in some cases are maintaining old equipment rather than purchasing new machinery. The aluminum industry faces a special problem as the watershed dries out, creating power shortages and forcing plant shutdown. Generally, however, the production and employment picture in the District remains relatively good and most do not predict large increases in unemployment or declines in production in the near term.
Agricultural activity presents a mixed picture. The citrus and avocado crops of southern California suffered severe weather damage this season, and the production of peas, lentils, grass seed, and wheat was reported to be below last year's figures in parts of the District. Prices of these products have risen sharply in the past year--by as much as 25 to 30 percent in the case of wheat. Onion and potato prices are reported to be low, however, and low poultry prices are credited with restraining increases in beef and hog prices.
Financial institutions report that loan demand is holding despite record interest rates. Commercial loan demand is particularly strong. The 12 percent usury limit in Washington, however, is beginning to dry up home-mortgage funds and consumer installment lending has been weakened somewhat by soft automobile sales. Funds continue to be available as the result of deposit inflows, money market certificates, and access to the Eurodollar market. The net inflow of funds to savings and loan associations is reported to be "slight", with disintermediation from traditional accounts offset by money-market-certificate activity. Funds are reported to be generally available for both large and small borrowers.