January 23, 1991
Summary
Economic conditions in the West are reported to be softening
further. Slower growth is bringing continued moderation in wage and
price increases throughout the District. Holiday retail sales were
mixed in the West, but, generally, were above low pre-holiday
expectations. Manufacturing activity continues to slow across much
of the West. Agriculture and resource-related industries in the
District have been hit hard by a combination of low prices and
weather related difficulties. Construction and real estate activity
continues to be hampered by an abundance of vacant office space and
difficulty in obtaining financing. Western financial institutions
report mixed conditions, but many areas note a weakening in loan
demand.
Business Sentiment
Western business leaders' expectations about future economic growth
deteriorated slightly in January. Eighty-one percent now foresee a
national recession in the next twelve months, compared with 75
percent in November and 40 percent in September. An increasing
number of business leaders see this weak economic growth leading to
a lessening of inflationary pressures. Almost half now project
lower inflation during the coming year. Respondents were less
optimistic about foreign trade, with only 29 percent expecting a
pick-up compared to 44 percent an November.
Wages and Prices
Wage and price increases continue to moderate throughout the Twelfth
District. Most retailers reported significant discounting during the
holiday season in the face of a softening economy. Abundant grain
and feed crops are pushing down prices for many agricultural
commodities, like wheat. Prices for citrus fruits, especially navel
oranges, and some vegetables have risen significantly as a result of
the freeze in California. Wage demands are reported to be moderating
a job security has become a more important concern. In Seattle,
manufacturing wages are reported up 5 percent from last year,
bolstered by gains in aerospace.
Retail Trade and Services
Retail trade activity is mixed in much of the West. Holiday sales
were flat to slightly down from last year. However, according to
most reports, this performance was not too disappointing considering
the economic climate. Southern California registered weak sales,
while retailers in other areas of California reported slightly
stronger sales. In Oregon and Washington, sales were flat despite
severe weather that slowed holiday activity. Sales were slightly
above year-earlier levels in Idaho and Utah, and up a strong 9
percent or more in Hawaii. Most retailers entered the holiday season
with low inventories, and report that business plans for 1991 will
continue to be conservative. One retailer reports that sales were up
sharply in the first week of January.
Classified advertising volume continues to shrink for newspapers in California, but not as sharply as in other areas of the country. One report indicated that total classified advertising volume was down 3 percent from a year ago in California.
Manufacturing
Manufacturing activity in the West continues to slow. Defense-
related aerospace activity remains weak, and commercial aircraft
manufacturing is expected to slow. Aluminum and steel markets also
are reported to be soft. Manufacturing export volume is reported to
have improved slightly, while imports have weakened.
Agriculture and Resource-Related Industries
Agriculture is facing difficult conditions as lower prices and
weather conditions cloud the outlook. Large rain and feed crops are
pushing down prices for many crops. In Idaho, the price of farmland
is reported to have fallen in the face of sharply lower prices for
wheat. The freeze in California wiped out the Navel Orange crop and
damaged other crops and trees. The freeze is expected to reduce
California's $17.5 billion total farm revenue by $1 billion. In
addition to crop losses, the freeze also caused large layoffs in
food processing plants in California's central valley. Continued
drought conditions also are reported to be causing major problems
for California farmers. Lack of grazing land is reportedly forcing
ranchers to liquidate their herds or move them to feedlots. Despite
this increase in the beef supply, livestock prices remain high.
Agricultural exports continue to expand, but there are concerns that
the California freeze will hurt citrus producers' ability to move
into the newly opened Japanese market.
Forest product industries remain depressed. Weak demand has caused prices for paper, containerboard, and plywood to fall. These lower prices coupled with high log prices have squeezed profits and caused many mills to close in the Northwest.
Construction and Real Estate
Construction activity in most areas of the West is weak as a result
of an abundance of office space in most of the major cities.
Continued difficulty in obtaining financing for new construction
projects also is blamed for the slowdown in activity. Reports from
Los Angeles continue to cite high vacancy rates for downtown office
space, and more space is coming on line. Commercial building in
Seattle is described as lackluster. There is reported to be a
substantial amount of new space yet to be absorbed in Seattle. Roth
residential and commercial activity remain relatively solid in Boise
and Salt Lake City as well as in Sacramento, Bakersfield, and other
parts of California's central valley.
Real estate sales and prices remain weak throughout much of the West. In California, sales have stabilized in the past few months, with prices near their year-earlier levels. Most of the residential activity continues to be in the lower-priced end of the market. In Seattle, median home prices peaked in mid-1990 and are reported down 15 percent from that peak.
Financial Sector
Conditions in Twelfth District financial institutions are mixed,
with solid conditions reported in the inter-mountain states and
continued softening in coastal areas. Loan demand is reported weak
in Southern California, Oregon, and Washington. One report notes
that auto loan demand has softened, while another report indicates
that consumer credit card balances did not increase as much as usual
this holiday season.