Beige Book Report: San Francisco
September 16, 1985
Summary
Although signals are mixed, economic activity in the Twelfth
District appears to be slowing. Forest products, agriculture,
mining, and high technology industries all remain depressed due to
continued low prices. Retail spending, which helped sustain the
region through its recent problems in the manufacturing and
agricultural sectors, seems to be slowing down. Construction and
real estate activity is mixed, varying both with location and with
building type. Employment growth in trade and services appears to be
continuing although growth in trade employment appears weaker than
its previously high rate.
Consumer Spending
In general, retail spending in the Twelfth District appears
sluggish. In a small sample of California department stores, one
reported July sales up 2 percent from a year earlier and one
reported flat sales. July sales at two other department stores were
below last July's level, one by 18 percent. Even high priced stores
have resorted to price cuts in order to move merchandise. Auto sales
are reported to be weakening. For example, auto sales in Oregon were
down 9 percent in June, and 43 percent of these sales were imports.
Nevertheless, sales at restaurants, including fast food outlets,
remain strong, and limited available data suggest that credit card
sales and consumer borrowing likewise continue to grow.
Manufacturing and Mining
Sales of forest products continue to suffer from slow demand and
Canadian competition. Inventories have generally fallen, but this is
more the result of production cutbacks than strong sales. Although
prices are rising slightly, they remain low and the falling dollar
has yet to affect sales. Fires in the Pacific Northwest and Canada
have curtailed cutting in these locations, which will hurt producers
in Washington and Oregon but should help Alaska's troubled timber
producers.
The slump in high technology industries continues to reverberate throughout the Twelfth District. Layoffs, short work weeks, and suspension of investments continue unabated.
Mining and oil activity likewise continues to be flat or down from year earlier levels, with no end in sight for the low prices which are responsible for the weakness. Further oil price reductions would benefit consumers as well as the transportation. agriculture, and tourism industries. However, oil producing regions would be hit hard. Alaska, which is heavily dependent on oil revenues, would suffer a particularly strong setback.
Construction & Real Estate
Construction activity, as measured by permits and starts, is up in
most of the Twelfth District. However, activity appears weaker in
Washington, Southern California and in Utah. Multifamily residential
construction is particularly volatile and varies substantially by
location. For example, multifamily permits, which had been rising in
Utah, fell sharply in June, while in Oregon June multifamily permits
were up 200 percent from their year earlier level.
Sales of existing houses are either flat or slightly up in most markets. The Portland market is strong, with existing home sales in July 16 percent above their June level and 23 percent above the year earlier level. Particularly weak markets include condominiums and, in some localities, vacation homes.
Agriculture
Yields promise to be strong this year, leading to further price
reductions. Pest problems, including the grasshopper infestation in
Idaho, have affected specific areas but are unlikely to affect
overall yields. Prices remain below their year-earlier levels for
wheat, canning crops, grapes, almonds and cattle.
Financial Sector
Interest rate changes present a mixed picture, with some states
reporting increases in fixed-rate mortgage and consumer loan
interest rates and others reporting declines. Similarly, new
mortgage loan volume is up in some states and down in others. Strong
demand for mortgage refinancing throughout the Twelfth District is
focused on refinancing fixed-rate mortgages at a lower fixed rate.
Delinquency rates for credit card and consumer loans continue to rise in Utah, Idaho, and Nevada. Large loan losses at many financial institutions will prevent them from enjoying what would otherwise be one of their more profitable years.