Beige Book Report: San Francisco
October 27, 1987
Summary
Economic conditions in the West generally continue to be positive. Growth in some sectors and regions is creating shortages of some types of labor, and puffing upward pressure on wages. Manufacturing, agriculture, and forest products are seeing further improvements in their competitiveness on world markets. Construction activity continues to vary widely across regions, with the coastal states generally strong. The rate of growth in loan demand has declined considerably during the past year, so many financial institutions are attempting to increase their loan portfolios rather than sell assets.
Consumer Spending
The market for automobiles currently is weak. Purchases of new mid-priced cars reportedly are weakening, and used cars are expected to claim a greater share of the market next year.
In some regions, trade and service firms are experiencing difficulty recruiting qualified workers, which in some cases is creating upward pressure on wages and salaries. Among unskilled workers, the new immigration law and possible increases in state minimum wages also may push wages up. In the Seattle area, employment service professionals report that it is an "applicant's market", with many job openings but high quality workers increasingly difficult to find. Workers either are staying with their current jobs, or are requiring more money to be induced to move. In contrast, wage pressures appear to be absent for the most part in Arizona, Utah, and eastern Washington, while Oregon's general economic health appears to have had little effect on wages thus far.
Manufacturing
The dollar's decline, together with campaigns in some Asian countries to "buy American" in order to ease the threat of trade restrictions, has opened up significant opportunities for makers of computers, semiconductors and aircraft. Manufacturers of commodities such as chemicals and paper were affected first, but gains now are spreading to a whole range of light manufactured products, including medical equipment industrial valves. Export-financing companies in California reportedly are being inundated with requests from trading companies in Hong Kong and Singapore , which just recently have begun seeking US products to sell in various Asian countries.
One respondent notes that his paint manufacturing company is turning increasingly to domestic suppliers for titanium dioxide, a raw material supplied both domestically and abroad. The price of this material, which is a key ingredient of paper and plastics as well as of paint and coatings, has increased substantially due to the dollar's slide.
In Utah, a previously closed steel plant has been reopened, largely because its new owner has contracted with a large German firm, which reportedly will purchase about 40 percent of the tonnage the mill produces during the next five years.
Throughout the District, reports indicate that manufacturing industries have adequate labor available at current wages, contrasting in some regions with labor market conditions in trade and the services. In California, despite a substantial pickup in orders, computer, electronics, and semiconductor firms only now are beginning to increase hiring. Aerospace firms, anticipating a slowdown in future defense orders, also are maintaining relatively cautious hiring policies unless they have major contract deadlines to meet. Nevertheless, pressure probably is building for larger wage increases in a number of sectors, including a potential increase for apparel workers due to the new immigration law.
Agriculture and Resource Related Industries
Western forest products companies have seen dramatic improvements in exports during the past year. Volumes generally are greater than they were last year, and prices have increased as well. An Oregon respondent reports that the volume of lumber exported rose 20 percent, to well over a billion board-feet, between the first half of 1986 and the first half of 1987. Log exports rose 13 percent to 1.7 billion board-feet. During the same period, the value of exports of logs, lumber, and plywood rose by $1.73 million, a 24 percent increase. One Alaska timber company's exports decreased from 114 million board-feet to 102 million, but the value of that timber posted a dramatic 75 percent increase.
Conditions also have improved for other agriculture and resource products. Cotton exports, for example, are up sharply from last year. Moreover, the weakened dollar has made domestically produced copper more competitive, lowering copper imports and improving U.S. competitiveness in western Europe and Asia.
Construction and Real Estate
Construction activity continues to be mixed in the Twelfth District. Geographical differences are reflected in sharp differences in construction labor market conditions. For example, in California, Hawaii, Nevada, Oregon, and Washington, where overall construction activity is healthy, construction employment grew by 5 to 10 percent during the past year. In contrast, construction employment has declined by close to ten percent during the past year in Alaska, Arizona, and Utah.
In southern California, demand for real estate continues strong, due in part to an abundance of foreign buyers, particularly from Japan.
Financial Sector
Loan demand in many parts of the District currently is slow, leading many banks to seek additional assets rather than sell loans on the secondary market. A Seattle banker reports that installment loan volumes are increasing at a 3 or 4 percent pace compared to 1986, whereas last year at this time they were growing at about a 13 percent rate. Likewise, commercial loan volume at the same bank is off about 3 percent (year-to-date through August) compared with last year. A Kern County banker reports that the demand for both consumer and business credit has been slack. Banks in Idaho and southern Oregon also report slow asset growth, with most institutions attempting to add to their loan portfolios.