Beige Book Report: San Francisco
June 23, 1993
Summary
Disparate economic conditions continue in the Twelfth District with
the weakest performance reported in California. Contacts in most
other District states are reporting expanding economic activity. In
California, manufacturing activity continues to slump, construction
and real estate markets remain weak, and retail sales and financial
activity are flat. Weakness in aerospace also has dampened growth in
western Washington. Outside of these regions, growth is reported in
several sectors, with overall conditions strongest in eastern
Washington, Utah, and Idaho. Overall business sentiment has
deteriorated since early 1993, with most contacts expecting
continued slow growth. Contacts report that uncertainty regarding
several federal policies is delaying business investment and hiring
decisions. Agricultural conditions are generally favorable, although
recent wet, cool weather is harming several fruit and vegetable
crops in California and Oregon.
Business Sentiment
Sentiment among Twelfth District business leaders has deteriorated
since the first quarter of 1993. Less than half of the 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 down from two-
thirds in April and three-quarters in March. The majority of our
respondents expect the economy to expand, but at a rate less than
2.5 percent. In general, contacts from Idaho, Oregon, and Utah
expect their regions to perform better than the national average.
Most contacts in California and Washington, however, expect their
regions to underperform the national average.
Retail Trade and Services
A national retailer reports that, while May was the best month of
the year, sales at the beginning of June were sluggish and
conditions in California remain flat. A national grocery retailer
reports that consumers remain cautious and that California food
sales are down, with club stores continuing to take business from
grocery chains. A contact from California reports continued subpar
consumer spending and continued corporate restructuring in retail
trade. In contrast, a contact in telecommunications in California
reports a slight pickup in demand during the past few months
compared to the fourth quarter of 1992.
Auto sales are showing strength in certain markets. In the Puget Sound area, sales of domestic autos in May were reported up 8 percent over a year earlier and import sales were reported up 12 percent. Auto sales were also reported strong by contacts in Arizona, Idaho, and Utah.
Manufacturing
Manufacturing activity is mixed in the District, with weakness
centered in aerospace and defense-related industries. In Washington,
aerospace employment is down due to cutbacks at Boeing. A contact
from California reports that manufacturing remains in a serious
slump, with aerospace hardest hit and primary and fabricated metals
manufacturing activity also down. Overall activity in high-tech
electronics also is down in California, except for selected computer
products such as laptops which are experiencing strong demand. In
Oregon, however, electronics production remains strong, and in Utah
manufacturing activity is expanding in a diverse set of products
including auto airbags, medical devices, sports equipment, and
computer software. Railroad freight traffic is improving in western
states, and is projected to be up 3.1 percent in the second quarter
from a year earlier.
Several contacts are reporting that uncertainty regarding federal tax and spending policies is delaying business investment and hiring plans. In Oregon, a contact reports that a number of projects expected to go into construction in the second half of the year are in jeopardy. The ongoing discussion regarding health care reform reportedly also is delaying investment in pharmaceutical and bio- tech industries. Finally, uncertainty regarding trade policy is of concern for importers, and also is reported to have delayed some investment decisions. Trade policy towards China (now temporarily resolved) is reported especially important to the Washington economy, where new airplane orders from Chinese airlines to Boeing in part have made up for cancellations from domestic airlines.
Agriculture and Resource-Related Industries
While most contacts report a generally good outlook for agriculture,
the recent wet, cool weather is harming many crops. Field and
vegetable crops are showing below normal growth, tree crops are
tending to be light to normal, and mold and mildew are showing up on
some fruit and grape crops. Contacts report generally good livestock
conditions. The outlook for seafood, however, is reported poor and
grain exports are reported slowing.
Construction and Real Estate
District real estate and construction markets show widely disparate
conditions, with the weakest performance reported in southern
California. A contact from the region reports that residential
prices have fallen 10 to 40 percent in the last 2 years, depending
on the market. Another contact reports that commercial real estate
values in southern California continue to decline, with vacancy
rates high and little building. A contact from northern California
reports that while commercial real estate conditions remain slow
with few sales, rents have stabilized. Other regions are showing
strength. Conditions in Arizona are reported firm, with commercial
rents increasing slightly and home sales strong. Housing markets in
eastern Washington, Utah, and Idaho are reported to be very strong.
Financial Institutions
Mixed conditions are reported across District financial markets.
Contacts in California report continued weakness in loan demand. A
contact from Arizona reports a general reluctance to borrow, and a
lack of good lending opportunities. Utah banking continues strong,
with slightly heavier demand for commercial loans. Loan demand in
Hawaii is reported soft except for home loans. A shortage of
insurance for real estate, however, is reported because of Hurricane
Iniki.