June 17, 1992
Summary
Economic conditions remain weak in California, but are improving
moderately in other District states. In California, particularly in
the south, cutbacks continue in aerospace and defense-related
manufacturing, state government, and higher education. Tourism has
also fallen in southern California following the Los Angeles riots.
Outside of southern California, moderate improvement is reported in
non-defense manufacturing, residential construction, retail trade,
and agriculture. The strongest conditions remain in Utah and Idaho.
Exports to Latin America and Pacific Rim countries are growing
moderately, except to Japan where a weaker economy has reduced
demand for several District products. Overall business sentiment has
improved since our last report. Little upward pressure is reported
in wages and prices, although the proportion of contacts expecting
lower inflation has decreased.
Business Sentiment
Economic expectations of Twelfth District business leaders improved
since our last report. Over half of our respondents now expect the
real economy to expand during the next four quarters at a rate of at
least 2.5 percent. This proportion is up from one-third in April. In
contrast, almost no respondents expect output to decline during the
next four quarters, compared to 5 percent in April and almost 33
percent in January. Most respondents expect improvement in
investment, consumer spending, and housing starts. Although few
respondents expect inflation to accelerate, the proportion expecting
a reduction in inflation has fallen to one-fifth from over one-half
in late 1991.
Wages and Prices
Contacts report little upward pressure on wages and prices in
District markets. Wage increases are reported in be in the 3 to 3.5
percent range, with smaller increases reported for some public-
sector workers due to budget cutbacks. Price changes are reported to
be modest except for health care and insurance. In California,
gasoline prices in April were up 15 percent from a year earlier,
partially as a result of new environmental restrictions. In Utah,
gasoline prices were reported up about 10 cents a gallon since
April. Aviation fuel prices, however, are reported down during the
past two months. Lumber prices peaked in April and are now off one-
third. Standing timber prices, however, have not come down as much
as end-use product prices. Prices of materials are reported stable
or declining slightly.
Retail Trade and Services
Contacts with major retailing operations report gradual improvement
in department and discount store sales across much of the District,
but sluggish conditions in southern California. A contact in Idaho
reports some increase in customer traffic for auto dealers, but
continued "spotty" sales. Consolidation in the legal profession is
beginning to taper off in Washington, with one contact projecting
some moderate new hiring by the end of 1992. Demand for
telecommunications services is weak, particularly in southern
California. A media contact in California reports that advertising
activity seems to be picking up, although it is still below last
year's level. State government budget problems in California
threaten layoffs of state workers and in public higher education. In
Hawaii, tourism was down 6 percent in April from a year-earlier,
driven by an 18 percent decline in mainland visitors.
Violence in Los Angeles has led to the loss of over 5,000 retail jobs in the area. Over the longer-run, tourist activity is a major concern. Hotel occupancy rates have fallen and massive summer reservation cancellations are reported by some hotel managers.
Manufacturing
Cutbacks in aerospace and defense-related industries continue across
the District. Job reductions of 6,500 are projected for Boeing this
year in Washington, and McDonnell Douglas has announced the closing
of a 2000-worker production facility in southern California. Defense
cutbacks have been felt even in the robust Idaho manufacturing
sector.
Outside of defense and aerospace, conditions are improving modestly. A machinery manufacturer in Utah reports that construction equipment sales are better this year, with only a few final sales lost due to recent labor disputes. Conditions in the electronics manufacturing sector are improving modestly, with no capacity constraints or inventory problems reported. Employment emphasis in electronics has switched from downsizing to holding steady. Pronounced weakness, however, is reported in orders from Japan for electronic components, leading to layoffs in Arizona. Continued demand for electronic components is reported from other Pacific-Rim nations. California high-tech firms exporting circuit boards and other electronic components are finding a strong market in Taiwan, where computer assembly work is active.
Agriculture and Resource-Related Industries
A contact in the timber industry reports that lumber and plywood
sales are down, as are product prices, and that inventory levels are
adequate-to-high. Orders for paper products and for boxes were
strong in April and May. In early 1992, lumber exports were down 21
percent from a year earlier, and shipments to Japan (America's
largest overseas market) were off 22 percent. Exports of printing
and writing paper, however, were up 30 percent. Exports of fishery
products have improved somewhat, but overall demand and prices for
seafood remain weak. New orders for export grain have slowed, but
exports of other agricultural products to the Pacific Rim and Mexico
are reported strong. Export demand from Japan, however, has fallen
for produce and beef. Citrus fruit crops in California have
rebounded strongly from last season's freeze damage.
Construction and Real Estate
Construction and real estate activity varies substantially across
District markets. Utah and Idaho are experiencing a boom in
residential construction, with single-family starts up 39 and 65
percent, respectively, in the first four months of 1992 from a year
earlier. Home sales activity is reported mediocre-to-good in Alaska,
but home construction is flat. In Arizona, a contact reports that
while residential sales activity has risen during the past year,
mortgage loan applications for new purchases have declined
noticeably in recent weeks. In the Puget Sound area, residential
real estate is characterized as improving slowly. Closed sales,
however, declined markedly between February and April. In Hawaii,
home sales are brisk in lower-end markets (below $350,000), but slow
in more expensive markets. Bids for public sector construction
projects in Hawaii are coming in much lower than anticipated. The
housing market in California is reported mixed. New home
construction remains relatively weak, while sales of new and
existing homes have rebounded somewhat from the weak conditions of
late 1991. Commercial real estate conditions remain depressed in
southern California.
Financial Institutions
In general, contacts in financial industries report slightly
improving conditions. The banking industries in Utah and Idaho
continue to enjoy favorable business conditions. Mortgage and
consumer loan demand is very strong, while commercial loan demand is
stable. A contact in California reports modest improvement in
consumer and business loan demand, although overall loan demand
remains weak. California savings and loans are experiencing an
uptick in lending. Mortgage applications in the Puget Sound area
have cooled from the refinance-driven pace, but are leveling out
about eight percent ahead of last year. Loan demand in Oregon is
reported strong for single-family mortgages. Financing for
residential construction is reported available, but land development
loans are difficult to find.