Beige Book Report: San Francisco
March 10, 1993
Summary
Economic conditions remain mixed in the Twelfth District, with
weakness reported in California and Washington, but generally
favorable conditions reported in most other District states. In
California, weak conditions continue in areas dependent on aerospace
and defense-related manufacturing; and in Washington, significant
layoffs in 1993 were announced at Boeing. Outside of these areas,
growth is reported in several sectors, with the strongest conditions
reported in eastern Washington, Utah, and Idaho. Overall business
sentiment continues to improve, and recent rains have improved
District agricultural prospects. Little upward pressure on prices is
reported and wage increases are reported to be modest.
Business Sentiment
Sentiment among Twelfth District business leaders continues to
improve. Almost three quarters 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-half in January
and one-third in November. In general, contacts from Idaho, Oregon,
and Utah expect their regions to perform slightly better than the
national average. Most contacts in California and Washington,
however, expect their regions to underperform the national average.
Wages and Prices
Little upward pressure on prices is reported by contacts in most
District markets. An exception is timber prices, which are reported
to have risen 20 percent since December. Pulp prices, however, have
declined due in part to weak export demand. Aluminum prices are
reported as very soft due to declining demand. Most contacts are
projecting wage increases near 3 percent, although some decreases
are reported for public employees in fiscally strapped regions.
Retail Trade and Services
Contacts report generally good retail sales in most District
markets. One national retailer reports that sales continue
moderately better than last year, that inventories are slightly
leaner, and that conditions have improved somewhat in both northern
and southern California. Another national retailer reports stronger
than expected sales in January and February, and also that
inventories are lean, but that California remains a weak spot.
Robust new truck and used car sales are reported in Idaho, although
consumers remain cautious.
In California, weakness is reported in a broad range of service sector activities. In legal services, a contact from northern California reports that a number of firms have announced layoffs in the last month and that more firms are expected to contract in size. In telecommunications, demand is reported as very weak with a large number of disconnections occurring in southern California, The state's public universities face further cutbacks, and overall tourism is flat.
Manufacturing
District manufacturing activity continues to contract as layoffs in
aerospace and defense-related industries continue in southern
California and Washington. In mid-February, Boeing confirmed it
would eliminate 23,000 jobs this year and another 5,000 during the
first half of 1994. Of the total this year, 15,000 jobs will be cut
in Washington state. Contacts report that these job reductions were
widely expected following Boeing's announcement in late January that
it would reduce production. The Boeing cutbacks are expected to have
a negative impact on its suppliers, with layoffs already announced
by smaller firms in Washington, Oregon, and southern California.
Outside of aerospace, District manufacturing activity shows signs of increased activity. Orders for computer equipment and software are reported strong, the heavy equipment industry is reported as doing well, and bio-tech firms continue to expand. A contact from southern California reports that exports of high-tech high value-added goods are one of the region's few bright spots.
Agriculture and Resource-Related Industries
Recent rains and the large snowpack have improved agricultural
prospects in much of the District. Acreage for several crops will be
expanded due to improved water supplies. Conditions are reported to
be favorable in the livestock industry, and spring grass should be
exceptional for grazing. Flooding in Arizona, however, threatens the
winter lettuce crop.
Construction and Real Estate
Nonresidential real estate and construction activity remains weak in
several District markets. A contact in southern California reports
that effective commercial rents continue to decline, and that
concessions to tenants are up. A contact from northern California
reports a four year supply of office space in San Francisco, and
that available construction funds are being used to bring buildings
up to code. In Oregon, a contact reports excess capacity in the
construction sector, and in Utah, a contact reports that permanent
financing for commercial properties is unavailable in most cases.
The residential sector is showing more strength. A contact in Arizona reports that housing starts are the highest in 10 years, and that good residential lots are in short supply. Housing prices remain soft throughout California, although sales activity has increased. Real estate conditions remain strong in Idaho, Utah, and eastern Washington. Residential lending in Hawaii is reported to be hampered by a lack of homeowner insurance due to Hurricane Iniki.
Financial Institutions
Mixed conditions are reported across District financial markets. In
California, a contact at a large bank reports that construction,
commercial, and industrial lending continues at levels below a year
ago. Another contact in California expects continued weak demand for
business and consumer loans through 1993, but expects some
improvement in mortgage activity. Overall balance sheets are cleaner
and stronger. Slow to moderate loan demand and good credit quality
is reported by contacts in Utah and Oregon, and at community banks.
Financing for small businesses remains tight.