May 2, 1990
Economic conditions in the West are little changed. Most reports indicate that western businesses continue to do relatively well, although most respondents still expect slow national growth. War and price increases in the West continue to cluster in the 3 to 5 percent range, although larger price increases as well as price declines also have been reported. Sales of nondurable goods are reported to be continuing at a solid pace. Most reports on service industries are relatively upbeat. Conditions in manufacturing industries seem to be good overall. Current conditions are satisfactory in most resource industries, but signals suggest that activity may slow in the near future. Conditions in western construction and real estate markets remain fundamentally unchanged, with healthy activity reported in most parts of the West. Most bankers in the West report "good" or "stable" conditions.
Business Sentiment
Western business leaders continue to anticipate relatively slow
economic growth during the next twelve months, although the
proportion of respondents anticipating healthy growth has increased
during the last month. No respondents anticipate that economic
growth will exceed the 2 1/2 to 3 percent range and only about 15
percent expect improvements in business investment, housing starts,
or consumer spending. 44 percent of the respondents do anticipate
some improvement in the trade balance, however.
Wage and price increases in the West continue to have a "central tendency" in the 3 to 5 percent range. Changes in construction costs have a particularly wide range, with bids in the booming Sun Valley market up 12 percent in the past few months, and prospects of slower building activity in the Los Angeles area reducing bids there by as much as 15 percent in the last eight months. Wage pressures seem relatively intense in Hawaii, where a recently negotiated hotel workers' contract calls for average increases of 10 percent per year over the next five years, and bus driven recently settled on a new contract with wages up 7 percent. Grain prices have fallen substantially, while health care cost increases continue to flirt with the double-digit range. Timber and paper prices appear to have stabilized.
Trade and Services
Sales of nondurable goods are reported to be continuing at a solid
pace. One retail chain reports that, while sales continue strong at
most of its western stores, it has noted some softening in the Los
Angeles market for the first time. The wholesale apparel market is
still in the process of recovering from the disarray associated with
the financial problems of a few large retailers.
Most reports on service industries are relatively upbeat. However, a publisher reports that help-wanted advertising has fallen significantly during recent weeks, with a recent dropoff noted in advertising for health care positions.
Manufacturing
Conditions in manufacturing industries seem to be good overall.
Activity remains robust in commercial aerospace, with companies
trying to increase production further so that they can make more
progress on their sizeable order backlogs. However, obtaining timely
delivery of materials, parts, and sub-assemblies is constraining
production increases for some companies. In addition, there is some
evidence of increased export activity by manufacturers of
specialized products such as precision machine tools, scientific
instruments and safety airbags for automobiles.
Agriculture and Resource-Related Industries
Current conditions are satisfactory in most resource industries, but
signals suggest that activity may slow in the near future. Farmers
in many parts of the West face water shortages after the fourth
straight year of substandard moisture. In California, where farmers
have been relatively unaffected by water shortages in recent years,
farm water allotments for this summer are being reduced by as much
as 50 percent. Higher water costs and changes in plantings are
likely results. Growing conditions are better in most of Washington
and Oregon, where water currently is more plentiful. Deliveries of
logs currently are strong, but forest products companies face
cutbacks in logging allowances due to environmental concerns. The
effects of these cutbacks are likely to he most severe in Oregon,
where Forest Service land historically has supplied a majority of
logs.
Construction and Real Estate
Conditions in western construction and real estate markets remain
fundamentally unchanged. Activity in California is returning to more
"normal" levels in the previous hot coastal markets, but prices and
sales activity remain robust in the more affordable parts of the
state, such as Sacramento, Riverside, and San Bernardino. In Oregon,
residential construction activity continues to strengthen. Seattle
housing market activity continues to he relatively frenetic,
although anecdotal evidence suggests that selling times may have
lengthened slightly in recent weeks. Observers in Utah and Idaho
report some improvement in activity in those states. Construction
activity remains strong in Hawaii, while problems persist in
Arizona.
A southern California developer reports that major properties seem to be selling at a slower pace, probably due to extra caution on the part of buyers. At this point, the dropoff in buyer interest has been most noticeable for buildings whose quality does not warrant a Class A rating.
Financial Sector
Most bankers in the West report "good" or 'stable" conditions. Loan
demand is strong or growing in most parts of the District. Mortgage
demand continues strong in Washington, and more than doubled for
some Utah banks during the past year.
There currently is little evidence of a "credit crunch" in the Twelfth District. Most contacts indicate that they have neither experienced recent changes in credit conditions, nor are aware of others that have experienced significant changes. However, more stringent regulatory limits on the amount that one borrower can receive from a single lender are reported to he restraining lending activity in some cases. Moreover, about a fifth of the contacts report that lenders they regularly deal with have increased collateral requirements on new loans, increased required down payments, shortened loan terms, or otherwise tightened lending policies.