Beige Book Report: San Francisco
December 5, 1985
Summary
Overall, the Twelfth District economy continues on its slow growth
path, with substantial variations among sectors and areas within the
District. Consumer spending appears to be slowing down in many parts
of the District. Forest products and semiconductor firms continue
retrenching, although some early signs suggest that the pace of
deterioration in lumber activity is slowing. Agricultural producers,
however, continue to suffer from low prices in key crops. While a
glut of commercial space in many parts of the West has caused a
slowdown in nonresidential building, residential construction
activity continues to vary with location.
Consumer Spending
The growth in consumer spending appears to be slowing down in many
parts of the Twelfth District. Although this could be related to the
recent surge of auto purchases, recent substantial declines in
shipments by a large freight carrier suggest that retailers expect
sales to slow further. Oregon, Utah, Alaska, and Idaho all report
flat or even falling retail sales. In contrast, in relatively
healthy Southern California and Washington, where sales growth was
relatively soft during the first half of the year, growth has
strengthened in recent months. Throughout the District, more sales
are being made by volume discounters rather than traditional stores.
Moreover, most areas report a recent shift in consumer spending—even excluding autos—toward soft goods such as apparel and away
from durable items such as consumer electronics and furniture.
Manufacturing and Mining
In general, manufacturing and mining sectors continue weak. Some
isolated exceptions including strong drilling activity in Nevada and
Utah, and the opening of some small specialty mines in Utah. For the
most part, however, Twelfth District activity in these sectors is
down. In particular, the electronics industries continue to suffer.
Layoffs and losses continue to be reported from California, Utah,
Oregon, and Arizona.
Some signs suggest that the forest products industries may be stabilizing after the troubles of the past few years, although problems remain. Some report increased shipments to Asia as the value of the dollar falls, but attribute this movement to short-term inventory adjustments in Japan and China. They also point out that the declining value of the dollar does not improve producers' position relative to their principal competitors in Canada and the southern United States. Nevertheless, the continuing shakeout among lumber producers is yielding a leaner, lower cost, more efficient industry, which is better able to respond to these threats. One positive sign for the industry is that softwood lumber prices in October were less than 1 percent below the level of October 1984, compared to a 6 percent drop the previous year. Thus, while the downslide may be slowing, the industry remains troubled, as low- priced competition from British Columbia and the South continue to cause consternation in the Pacific Northwest.
Agriculture Producers of agricultural products continue to suffer from low prices induced by growing worldwide production and relatively weak demand. Spurred by a continuing downward price slide, cotton acreage has fallen by 300-400 thousand acres in recent years. Prices for wheat and cattle remain well below their year-ago levels, although they have inched upward in recent weeks. On the bright side, the prospects for potatoes are improving, as crop quality is good and prices are reviving from a short slide late in the summer.
Construction and Real Estate
In many parts of the Twelfth District, high commercial vacancy rates
are starting to be reflected in slower nonresidential permit
authorizations. Exceptions are primarily in smaller metropolitan
areas in Idaho and California's San Joaquin Valley, where vacancy
rates remain below 10 percent and nonresidential activity is, in the
words of one respondent, "on a roll".
Residential construction activity varies substantially within the District. Despite Oregon's economic problems, some report an upswing in residential construction activity there, particularly of multifamily units. Multifamily construction is also strong in Idaho, but gluts in Utah and Arizona have curtailed apartment and condominium developments in those areas.
Finance
Trends in consumer loan volume likewise vary by location.
Interestingly, some of the areas whose economies are struggling
more, including Oregon and Alaska report steady—although
relatively modest—growth in volume, while California and
Washington, whose economies are among the strongest in the District,
report a slowdown from their earlier borrowing binges. Banks report
that delinquency rates are either stable or rising, and range from
less than 1 percent to almost 3 percent. Those who reported
delinquencies for bank cards and installment credit separately
invariably showed higher—and frequently rising—delinquency
rates for credit cards.
Reported mortgage interest rates for 30-year fixed rate instruments hover at or below 12 percent. Several banks reported slightly lower rates than in the previous month, but one bank reduced its mortgage rate by 50 to 75 basis points during the past month. Mortgage volume appears strong overall, although there are exceptions. One Oregon bank, for example, reported that through August its volume had fallen 16.3 percent from the same period a year earlier.
The few reports on commercial loan activity suggest that it is weak. No respondents reported strong commercial loans.