Beige Book Report: San Francisco
September 18, 1991
Summary
Economic conditions remain weak in much of the Twelfth District,
with areas that have felt the impact of the recession reporting few
signs of recovery. In intermountain areas where the recession has
had only modest effects, economic conditions continue to be much
better than in the District as a whole. Wage and price increases
throughout the District are modest, and consumer spending continues
to be sluggish. Slow retail sales have hurt sales tax revenues in
many jurisdictions, further squeezing already-tight state and local
government budgets. Manufacturing activity remains mixed, with the
aluminum industry reporting worsening conditions. Some District
farmers report disappointing fruit harvests, due either to poorer
than expected quality or disappointing volumes. Construction and
real estate activity remain slow, especially in California. Loan
demand continues to be sluggish in California, while Utah financial
institutions report relatively good conditions.
Business Sentiment
Economic expectations of Twelfth District business leaders improved
slightly in September. While a majority of respondents still foresee
GNP growth of less than 2.5 percent during the next four quarters,
only 5 percent now expect the next four quarters to be characterized
by recession. More than half of respondents project improvement
during the next four quarters in business investment, housing
starts, and consumer spending. Expectations about inflation also
seem to be improving, with 61 percent of respondents now projecting
some reduction in inflation during the next four quarters compared
with 50 percent six weeks ago.
Wages and Prices
Overall wages and prices are increasing modestly in the Twelfth
District. Retail prices are reported to be relatively stable, while
prices have fallen during the past year for many food products.
Prices also are reported down significantly for some office
electronic products. Increases in health care costs still outpace
the general inflation rate by a wide margin. Wage increases continue
to cluster in the 3.5 to 5 percent range throughout the District. In
California, however, tight state government fiscal conditions have
forced many middle and upper level state employees to take 5 percent
salary cuts.
Retail Trade and Services
Consumer spending remains weak in most parts of the Twelfth
District. A soft goods retailer reports that sales still are very
sluggish in California, Oregon, and Alaska. For his chain, sales are
slightly stronger in Washington and very good in Utah. In
California, higher sales tax rates are blamed for some of the
slowdown in retail sales. Auto sales remain weak in much of the
District, although some improvement was noted in Arizona and among
higher-end cars in Idaho. Year-over-year declines in newspaper
advertising volume have moderated somewhat in recent months, but
July volume was still l8 percent below its year-earlier level.
Manufacturing
Manufacturing activity in the West is mixed. Metals industries
continue to report weak conditions. Layoffs are mounting in the
aluminum industry, with one firm in the Pacific Northwest reportedly
cutting employment by more than 50 percent. Aluminum and zinc prices
are down, while copper prices have stabilized recently. Employment
in the aerospace industry continues to suffer from defense cuts.
Helicopter manufacturing employment in the US. is expected to fall 2
percent in 1991, despite improving exports. Boeing continues to
receive orders for commercial aircraft although the pace of new
orders has slowed in recent months. In Utah, some non-durable
manufacturing industries report growth in orders of 8 to 10 percent
from last year. A chemical products manufacturer reports that orders
have picked up in recent months, but remain 7 percent below a year
earlier.
Agriculture and Resource-Related Industries
Agricultural conditions in the Twelfth District have weakened
somewhat. Fruit growers in California report that harvests were
large, but some growers had trouble meeting size and quality
standards. Hot August weather in Washington reduced the volumes of
the apple and grape crops. Many commodity prices are reported down
from a year ago. Potato prices are off 50 percent, while hay prices
are reported down 15 percent. Beef prices also are lower as a result
of increasing inventories and low demand. In California,
agricultural exports continue to expand despite a curtailment of the
state's export promotion program as a result of budget cuts.
The forest products industry remains in poor shape, although one report from the Pacific Northwest suggests that some lumber mills have begun to rehire workers. Lumber prices have fallen back after a sharp run-up in the second quarter. Forest products industry employment in Oregon and Washington remains well below its level a year ago.
Construction and Real Estate
Construction and real estate activity remain sluggish in many parts
of the Twelfth District. In California, home sales are reported to
have slowed following the rebound seen this spring, while median
home prices seem to have stabilized. Commercial markets in southern
California continue to languish, with vacancy rates in downtown Los
Angeles expected to rise as new space comes on line. Residential
prices also are reported soft in Washington, and residential
construction activity there has fallen sharply since last year.
Conditions in Utah and Idaho are much better, with relatively strong
prices and sales activity. The median home price is reported up in
Arizona.
Financial Institutions
Conditions at Twelfth District financial institutions remain mixed.
In California, loan demand continues weak for most categories of
loans while credit quality is deteriorating and write-offs are
increasing. Loan demand also is reported soft in Arizona, although
auto and residential real estate loan volumes have improved. Banking
conditions in Utah remain solid.