Beige Book Report: San Francisco
January 28, 1981
The economy of the Twelfth District remains relatively stable. Most respondents expect very slow growth in 1981. A slowdown in retail sales has been reported after strong sales activity during Christmas. Firms appear to be reducing inventories because of continued high interest rates and expectations of reduced activity in the coming months. Housing sales are described as non-existent because of mortgage rates as high as 18 percent. Unemployment has decreased in recent months but is still regarded as too high. Agricultural prices are also on the high side and are expected to increase. NOW accounts have been widely promoted by financial institutions in the region. It is still too early to measure the impact of these accounts.
RETAIL SALES were reported to be brisk throughout the region during the Christmas season. Although pre-Christmas sales were lackluster, the four days before Christmas and the days after Christmas were unusually robust. Currently, sales in the district have tapered off and expectations are for a further weakening in activity the first quarter of 1981. Sales of consumer durables are expected to decline sharply in the coming months. As a result, firms are reporting modest reductions in inventories. Auto sales are thought to be especially slow because of continued high interest rates. Fear of higher rates in the coming months has generated added concern.
HOUSING activity in the region is at a standstill. Most potential buyers cannot qualify for loans at the present mortgage rates. Mortgage rates as high as 18 percent have been reported. Lenders are reluctant to make fixed-term mortgages at any rate. The housing sales that are taking place are primarily the result of older favorable commitments and special financing deals provided by the seller. Banks are reporting a rapid runoff in real estate loan applications. Little activity is expected in the coming months. A mortgage rate of 13 percent was said to be necessary before housing activity can be revitalized.
AGRICULTURAL interests are concerned over the lack of rain in the region. If no rain falls, serious problems for the industry could occur. While some agricultural prices are being kept down by large harvests, most agricultural prices remain generally high. Expectations are for even higher prices in the coming months. Some dairy farmers are worried that the increase in milk price supports will decrease milk consumption. The combination of decreased demand and increased supply has created an over-abundance of milk.
UNEMPLOYMENT figures are down throughout the region from previous months. However, unemployment rates are still considerably higher than a year ago. Certain industries and areas still remain hard hit by the recession. The forest products and construction industries have experienced large declines in employment. The outlook for 1981 is for only modest gains in employment.
NOW accounts are the major BANKING topic in the region. Beginning in December, financial institutions heavily promoted NOW accounts. A wide variation in terms was reported. Savings and loan associations tried to win customers by requiring minimum balances as low as $100. Banks were less inclined to compete for customers and required minimum balances as high as $2500. A wide variation was also reported in service charges. Promotional advertising on the topic has generally been confusing.