August 7, 1991
Summary
Economic conditions are weak in much of the Twelfth District, with
particular stress reported in southern California. Conditions in
Utah, Idaho, and Washington are reported to be relatively strong,
but few signs of expansion are reported elsewhere. Layoffs are
reported to be continuing in several sectors--including defense-
related manufacturing, banking, retail, and state and local
government. The rebound in California and Washington residential
real estate seen since the end of the Gulf War shows signs of
tailing off and commercial real estate remains weak. Exports to
Pacific Basin and Latin American nations, however, remain a source
of strength for agriculture, lumber, and manufacturing. While
consumer price inflation has been temporarily boosted by increased
sales taxes, underlying price and wage increases are reported to be
moderate.
Business Sentiment
Economic expectations of Twelfth District business leaders showed
little change in July. Respondents remain pessimistic about future
national economic growth, with 68 percent projecting GNP growth of
less than 2.5 to 3 percent over the next four quarters. This
proportion, however, has fallen steadily from 100 percent at the end
of 1990, and only nine percent of western business leaders now
expect the U.S. to remain in recession during the coming year.
Three-quarters of western business leaders expect no improvement in
the unemployment rate over the next year. About half of respondents
continue to project improvement in business investment, housing
starts, and inflation during the next four quarters.
Wages and Prices
Wages and prices are increasing at moderate rates throughout the
Twelfth District. In the Pacific Northwest, manufacturing and lumber
industry wages are up 4 to 5 percent from last year. Retail
nondurable prices are reported to be flat to up slightly. Prices in
California were affected by a rise in the general sales tax, an
expansion of coverage to include snacks, newspapers, and magazines,
and an increase in taxes on alcohol. Food prices are reported to be
stable, and livestock prices remain at relatively high levels.
Substantial discounting was reported for computers, hotels, fast
food, and designer clothing. Respondents from banking and service
sectors report stringent efforts to control costs in response to
weak markets and competitive pressures.
Retail Trade and Services
Consumer spending remains sluggish throughout the Twelfth District.
Auto sales in Utah Arizona, and Idaho are reported flat. Department
store sales still are slow, but inventories remain under control.
Some retailers are scaling back hiring substantially, especially in
southern California. Japanese tourist visits to Hawaii have picked
up recently, but their spending remains below pre-Gulf War levels.
California state government workers are facing pay cuts, work
furloughs, and reduced hours in response to budget cuts. Respondents
report recent layoffs among lawyers, accountants, architects, real
estate firms, banks, and community colleges.
Manufacturing
Manufacturing conditions in the West are mixed. Boeing continues to
operate at or near capacity and has plans to expand and modernize
facilities over a 10-year period. Metals industries, however, are
facing sluggish demand and some firms supplying the aerospace
industry currently are operating at less than 50 percent of
capacity.
Exports remain a source of strength for District manufacturers. During the first quarter, all new orders at Boeing were from foreign carriers. Small- to mid-sized communications, electronics, and paint-products firms reported increased orders during the second quarter. Foreign inquiries also have been made for the purchase of military helicopters.
Agriculture and Resource-Related Industries
Agricultural conditions in the Twelfth District are generally good,
but recent unseasonable weather hurt some crops including the table
grape crop in the southern San Joaquin Valley. Exports of
agricultural products to Latin America are a source of strength.
Mexico in particular is a growing market for California pears,
peaches, wine, and nuts, and Washington apples.
Lumber industry conditions remain weak, with orders and prices slipping in recent weeks. Year-to-date lumber exports (volume terms) were up 2 percent through April, as a 37 percent decline in exports to Canada was offset by a doubling of exports to Mexico. Log export volume to Japan has dropped 32 percent, but exports to other Pacific Basin markets have increased 42 percent.
Construction and Real Estate
Construction and real estate markets remain weak in much of the
West. The rebound in California and Washington markets seen after
the Gulf War shows signs of tailing off. Home sales have picked-up
somewhat in Los Angeles, but the rebound has moderated in Sacramento
and Seattle with unsold inventory putting downward pressure on
prices. Commercial real estate in southern California continues to
face high vacancy rates, declining rents, and a lack of financing.
Respondents report that several southern California real estate
development firms are under financial stress. Real estate markets in
Utah remain strong.
Financial Institutions
Financial institutions in the Twelfth District report mixed
conditions. In California, loan demand remains weak while deposit
generation is solid, led by strong growth in money market deposit
accounts. Mortgage demand is strong in Oregon and Utah. In Hawaii,
loan demand remains high, but it is becoming more difficult to
secure financing from mainland U.S. and Japanese banks. Respondents
in southern California report the unavailability of long-term
financing for commercial real estate except for "institutional
grade" projects with long-term leases already in place.