Beige Book Report: San Francisco
July 1, 1980
Business prospects remain fixed in the Far West. The aerospace- producing centers of California and Washington show signs of health, but other areas have been hurt by the recession and (especially) by the three major eruptions of Mount St. Helens. Losses of timber and crops, plus clean-up costs, may approach $3 billion in areas affected by the fallout of volcanic ash in Washington, Oregon, Idaho, and parts of Montana. Short-term damage to agriculture and to the health of residents living in the path of the ash showers has been less than originally forecast. But questions remain about the eruptions' long-term impact, especially on the regions' "clean environment" appeal to tourists and to the previously booming electronics industry. On the agricultural front, lingering cool weather has delayed the almond harvest and the cotton and fruit crops in California's Central Valley, while ash showers have put a crimp in Washington's alfalfa and apple crops, in addition to damaging harvesting machinery and irrigation pumps located in ash- silted rivers. Housing activity remains quite weak throughout the District, although some recovery is anticipated for late summer or early fall if mortgage rates continue to decline.
In the retailing sector, southern California and the Seattle-Tacoma area are outperforming most other regions of the nation. In Los Angeles-San Diego, sales are 12.6 percent above year-ago levels, despite a substantial decline in big-ticket purchases. Major regional shopping malls around Puget Sound reported business "like the old days" toward the end of May, with furniture sales outpacing other big-ticket items. Otherwise, retail sales remained generally flat in the West. Credit-card usage has declined considerably, while cash sales are increasing. Concern of consumers about the length and depth of the recession has been reflected in cautious spending habits. Variety discount stores, along with hardware and do-it- yourself lumber outlets, have been the strongest retail performers.
Housing activity remains sluggish, although the recent downturn in mortgage rates has stimulated listings and sales in the last month. However, housing-starts activity is only one-third to one-half of year-ago levels. Markets for both lower-priced homes and expensive homes appear fairly active, but markets remain weak for medium- priced housing.
Home prices have risen 7 percent to date this year in southern California, while increasing at a lesser rate in Washington and Utah. Analysts believe many potential home buyers are waiting for a further drop in interest rates to around 10 percent before purchasing. Inventories of unsold new homes are moderate to low in most areas, and builders reportedly are cautiously optimistic about a rebound in home-buying activity.
The timber industry of the Pacific Northwest, already buffeted by the recession and the weak home-building market nationwide, was dealt another blow by the volcanic eruptions. About 128 lumber operations in the path of the ash fallout reported cutbacks due to ash and flooding. Initial reports had indicated very heavy losses to the timber industry. But perhaps 90 percent of the 44,000 acres of fallen timber can be salvaged, provided that roads and bridges are restored to allow access to the devastated woodland and that log- cutting machinery and tree-hauling vehicles are not damaged by the ash.
California is anticipating a banner tourist year, based on a busy spring season. But tourism and restaurant sales are suffering in the Pacific Northwest as a result of the volcanic eruptions, the recession, and poor spring weather. Some Northwest resort areas report a 20 percent to 50 percent falloff in business, with some convention bookings canceled heading into the busy summer season. Public and private agencies, however, have leaped into action to resuscitate the tourist industry and to dispel the region's image of being covered by volcanic ash.
In the agricultural sector, unseasonably cool weather has reduced cotton production 10 percent to 20 percent in California's agricultural heartland and has also delayed fruit production and diminished the almond harvest. Because of a delay in the ripening of fruits and some vegetables, a glut could result if most of the major harvests reach market at the same time, pushing down prices at the retail level.
In Washington, about 15 percent to 20 percent of the state's winter- wheat crop was flattened by the ash storms. The ash also has caused excessive apple "drops" in the prime apple-producing Yakima Valley, with growers expecting a 20 percent decline to 20 million bushels this year. Washington's alfalfa crop was hit heavily by the ash fallout, but southern Idaho's alfalfa crop is the best in 10 years. Meanwhile, many bond buyers, weary about investing in the securities of communities affected by the eruptions, have raised interest rates 1/4 to 1/2 percent above normal levels on such issues.
A major southern California bank reported a sharp falloff in commercial and consumer loans in the spring period. However, it also reported a slight turnaround in savings deposit inflows in early June.