Beige Book Report: San Francisco
September 8, 1993
Summary
Economic activity is mixed across the Twelfth District. Economic
recovery continues to elude California, while intermountain areas
expand. In California, weakness continues to be reported in a broad
range of sectors--including aerospace and defense-related
manufacturing, trade, construction, finance, and government. Some
strength is reported, however, in California's motion picture and
nondurable manufacturing sectors. Sluggish conditions also are
reported in western Washington, affected by retrenchment in
aerospace, and Hawaii, undergoing a slump in the visitor industry.
In contrast, conditions are stronger in eastern Washington, Utah,
Idaho, and Nevada.
Business Sentiment
Sentiment among Twelfth District business leaders is little changed
from our July report. About half of the respondents expect the real
economy to expand during the next four quarters at a rate at or
above trend growth. This proportion is about the same as in July and
June, but is down from two-thirds in April and three-quarters in
March. Most other respondents expect the economy to expand, but at a
rate below trend.
Many respondents expect the recent federal budget agreement to have short-run negative effects on their regions and industries. Defense cuts reportedly will hurt manufacturing in California; higher tax rates are expected to affect small business owners, farmers, and individuals in high-income states such as California and Hawaii; and residents in areas with tong driving distance are concerned about the effects of higher fuel taxes. Businesses and consumers are reportedly cautious due to the tax changes, and some hiring decisions also are being delayed due to uncertainty about health reform.
Retail Trade and Services
Retail activity varies widely across the District, and reflects the
underlying regional economic strength. Low interest rates are
reported to have had only a limited effect on purchasing decisions.
In both northern and southern California, retail sales are flat and
consumer confidence is reported down due to continued job losses.
Retail sales in western Washington also are reported slow due to
concern over the regional economy. In contrast, sales in eastern
Washington have continued strong for more than a year and consumer
confidence has remained high. Consumer confidence remains very
strong in Utah and Idaho, with retail sales reported up nearly 10
percent during the first halt of 1993 from a year earlier, and auto
sales reported strong.
Conditions in service-related industries are mixed. Idaho and Utah are having record years in tourism. In contrast, the Hawaii visitor industry has slumped--affected by recessions in both California and Japan. During the first half of 1993, visitor totals in Hawaii hit a five-year low. In California, business services have strengthened recently, particularly in Orange County. Furthermore, the motion picture industry in Los Angeles is growing at a double-digit pace, and summer box-office revenues are at record levels. Local governments in California are suffering budget shortfalls and in parts of southern California they are asking for major wage concessions from public employees.
Manufacturing
Manufacturing activity is mixed in the District, with weakness
centered in aerospace and defense-related industries. In Washington,
Boeing currently is cutting production of several aircraft models.
Furthermore, concern is reported for future production levels at the
company due to uncertainty about foreign orders. One contact with a
smaller aerospace components firm expects that its current backlog
of orders will fall 50 percent by 1994. California defense firms
continue to shrink due to cutbacks and restructuring in defense and
aerospace. Southern Arizona, however, is benefiting from a shift of
aerospace production activity from California.
A few manufacturing industries show signs of improvement. In California, orders and sales have risen in the semiconductor industry, but the increased demand has yet to translate into higher employment. Contacts also report strength in California textiles, apparel, and fruit and vegetable production. Strength outside of California includes electronics in Oregon and Idaho, and construction equipment in Utah.
Agriculture and Resource-Related Industries
Most contacts report a generally favorable outlook for agriculture.
In California, most vegetable crops are reported to be in good
condition. Tree fruit yields are high, but sales are slow and prices
are low. In contrast, tomato yields are off but prices are reported
very good. Cattle prices are rebounding from summer lows, demand is
good, and export volume is expected to rise. Lumber prices are
reported up 30 percent from a year earlier. A contact from Nevada
reports that new mines are opening due to higher gold prices; higher
fuel taxes, however, will increase delivery and transportation costs
from remote locations.
Construction and Real Estate
District construction and real estate markets are mixed. In
California, despite low interest rates, single-family home sales are
little changed from their year-earlier levels. In Hawaii, sales of
existing homes are down 18 percent from a year earlier. The median
sales price in Honolulu, however, stands at $358,000, up 5.6 percent
from a year earlier and the highest in the nation. In Oregon,
immigration from California and low interest rates are reported to
have stimulated housing construction, and apartment market
conditions are reported tight with vacancy rates less than 4
percent. In Washington, downtown office vacancy rates have
stabilized, but no major new demand or construction is reported
except by owner/users. Reflecting at least in part a shift in
aerospace production, the Tucson housing market is booming both in
new construction and sales of existing homes. Idaho and Utah
construction and real estate markets remain strong.
Financial Institutions
Varied conditions are reported across District financial markets. In
California, contacts report condition in the banking industry as
showing modest signs of improvement; outstanding loan volume
continues to decline, but at a slower pace than has been seen in
recent months, while some measures of asset quality are improving.
One contact, however, reports that banks continue to be restrictive
in providing financing to small businesses throughout California. In
Oregon, banking conditions are reported good in part due to strong
construction and mortgage lending in the Portland area. Contacts in
Utah report strong bank earnings for the first half of 1993 and
improvement in balance sheets at most financial institutions.