October 23, 1991
Summary
Economic weakness continues in much of the Twelfth District, though
intermountain areas remain relatively strong. Retail sales are
sluggish, with some contacts reporting declining consumer
confidence. Manufacturing activity is mixed, with conditions in
California and the Pacific Northwest deteriorating, while conditions
in Idaho and Utah remain stable. The slump in commercial real estate
continues, particularly in southern California. Residential sales
activity has declined following the rebound in the first half of
1991, but median house prices remain stable. Wage and price
increase, with the exception of health care, are modest throughout
the District. Outside of refinancing activity, loan demand remains
sluggish. Agricultural conditions are mixed.
Business Sentiment
Economic expectations of Twelfth District business leaden worsened
in October. Eighty-five percent of respondents (versus 70 percent in
September) now foresee national GNP growth of less than 2.5 percent
during the next four quarters. The percentage of business leaden
expecting the next four quarters to be characterized by recession
increased to 17 percent (versus 7 percent in September), ending a
trend of improved recession expectations that began in January. The
outlook of business leaders in the West worsened in October for
business investment, consumer spending, and the trade balance. The
most optimistic expectations of business leaders were in the areas
of housing starts and inflation, where about half of the respondents
projected some improvement in the next four quarters.
Wages and Prices
Upward pressures on wages and prices remain minimal throughout most
of the Twelfth District. Retail prices continue to be constrained by
sluggish consumer demand. Prices have fallen for fresh meats and
vegetables, and remain stable for dry goods. Group health care
coverage costs are expected to increase 20 to 30 percent, with HMO's
projecting increases of 10 to 15 percent. Wage increases in the
Twelfth District mostly are reported in the 3 to 4 percent range,
although in some areas and industries in the Pacific Northwest,
wages are reported to be rising 4 to 5 percent.
Retail Trade and Services
Consumer spending remains weak in the Twelfth District. Most reports
suggest that consumers are hesitant to make large purchases in the
face of increased economic uncertainty. Retail soft goods sales
remain sluggish, although one retailer notes a recent pick-up in
men's clothing sales which the retailer views as a leading indicator
of overall sales. In Seattle, the bankruptcies of two large
retailers are being blamed partially on sluggish sales. Auto sales
also are reported slow, with one dealer indicating that consumers
are expecting prices to fall. Business at law firms is reputed flat
to down 15 percent with some layoffs expected. State and local
government budgets remain tight, especially in California and the
Pacific Northwest.
Manufacturing
Manufacturing activity in the Twelfth District remains mixed.
Conditions in California and in some industries in the Pacific
Northwest continue to deteriorate. The aerospace industry in
California continues to report layoffs, although the number of job
losses is smaller than in the last two years. Boeing still is
producing at full capacity, but orders so far in 1991 are well below
last year's pace. Low aluminum prices and demand will likely lead to
production cutbacks. In Idaho and Utah, however, manufacturing
activity is reported stable. In Idaho, solid conditions are reported
for food processors and electronics firms.
Agriculture and Resource-Related Industries
Agricultural conditions in the Twelfth District are varied, with
prices for some crops still low. Farmers in California's Central
Valley report declines in fresh fruit and vegetable prices because
of high production. In Idaho, dry bean prices are down 50 percent
from last year, and potato prices have fallen over 40 percent since
Spring. Livestock conditions remain split with producers still
profitable, while feedlot operators continue to lose money. Dairy
farmers are still facing tough conditions as a result of low prices.
The lumber industry continues to face falling finished product prices, while timber prices remain very high. Lumber product prices are expected to continue to erode into early 1992. Electric power prices in the Pacific Northwest have increased recently because of low runoff and the shutdown of two nuclear power plants in the region.
Construction and Real Estate
Construction and real estate activity remains slow in much of the
Twelfth District, though some strength is reported in Arizona,
Idaho, and Utah. New construction is reported to be constrained by
lack of credit and the effects of Resolution Trust Corporation
sales. Residential home sales, which had rebounded in the first half
of the year, now are reported to be sluggish throughout California
and the Pacific Northwest, though median prices remain stable.
Commercial real estate markets continue to face sizable oversupply,
particularly in southern California. In Los Angeles, office rents
have plummeted and the downtown vacancy rate reportedly may reach 30
percent in 1992.
Financial Institutions
Twelfth District financial institutions continue to report mixed
conditions. In California and the Pacific Northwest, loan demand
remains sluggish outside of refinancing, especially for consumer
loans. Non-performing loans continue to rise in California, but some
institutions report increased selling or liquidation of these
assets. Layoffs are reported among Arizona and California banks.
Banking conditions remain solid in Idaho and Utah.