Beige Book Report: San Francisco
May 4, 1994
Summary
Economic activity is strong in the Twelfth District outside of
California and Hawaii. In California, conditions remain weak,
although positive signs are starting to emerge. Business sentiment
in the Twelfth District continues to strengthen. Retail and tourist
activity are reported strong or improving in most parts of the
District. Manufacturing activity is mixed, with weak aerospace
markets and strong investment in computer and communications
equipment. Export markets for District agricultural products
continue to expand. Construction and real estate activity is booming
in many parts of the District, while residential markets are
starting to show signs of life in California. Loan demand is
reported to be strong or improving in most parts of the District.
Business Sentiment
Sentiment among Twelfth District business leaders continues to
improve. About two-thirds of respondents expect real national growth
to exceed 2 1/2 percent during the next four quarters, compared with
half of respondents in February. Growth is expected to be especially
strong in Arizona and the intermountain states, and weaker than the
national average in California and Hawaii. Well over half of
respondents now expect the inflation rate to rise during the next
four quarters, while less than half expected rising inflation in
February.
Retail Trade and Services
Retail and service industry conditions are reported strong in most
of the District. Sales in the intermountain states are reported
strong for a wide range of products, but the truckers' strike
reportedly is starting to cause problems for retail distributions.
Respondents in the Puget Sound area report strong sales of specialty
products. In California, food store sales improved in March.
Conditions in the tourism industry are strong. In Las Vegas, bookings at the new hotels are very strong. In Salt Lake City, robust tourist and convention demand has boosted hotel occupancy rates above 90 percent. California ski resorts reportedly have had a good season. Hotel occupancy in San Diego, Orange County, and West Los Angeles has been better than expected, with strong advance summer bookings reported. Conditions for San Francisco's hotel industry are described as excellent. In Hawaii, where visitor activity has been disappointing, the visitor count increased 8 percent between February 1993 and February 1994.
In California, demand for non-cellular telephone services has increased since the end of 1993. In Washington, cellular phone subscriptions are reported stronger than anticipated.
Manufacturing
Manufacturing activity remains mixed in the District. Aerospace
firms continue to report sluggish conditions and excess capacity.
One machinery manufacturer reports strong first-quarter sales, and
expects product prices to increase 3 to 4 percent this year. In
April, Boeing introduced its new 777, which could be approved for
commercial use by May 1995.
A producer of computers and related hardware expects sales to increase 5 to 10 percent in 1994, a slower rate of growth than in 1993. Strong investment is reported in a wide range of industries throughout the District, as companies replace outdated computer and communications equipment in order to increase productivity and improve their competitive positions. As of mid-April, interest rate increases had not lowered 1994 capital spending plans significantly.
Agriculture and Resource-Related Industries
Agricultural conditions generally are good throughout the District,
although reduced water allocations for farmers in California's
Central Valley are causing concern. California exports of cotton to
China have increased. Other agricultural export markets also have
strengthened, particularly Japan, Korea, and Mexico. Beef and apple
exports have risen. Increased imports of barley from Canada and
strawberries from Mexico have lowered prices for those crops.
Real Estate and Construction
Real estate markets are reported to be strong in most District
markets outside California and Hawaii. Double-digit home price
increases are reported in Tucson. In Phoenix, home prices and
residential construction are increasing and the commercial vacancy
rate is declining. Virtually no Class A office space is reported to
be available in some parts of the Phoenix area. Low vacancy rates
also are reported in northern Utah. In California, home sales
activity has picked up in recent months, and prices appear to be
stabilizing after a prolonged decline.
Construction activity is reported to be booming in all parts of the West except California and Hawaii. The increased activity has strained capacity and lengthened development times in some areas. Shortages of skilled construction workers are reported in many areas. In addition, prices for some construction materials are increasing. In California, housing permit activity has improved in recent months, although the pace of activity remains low by historical standards.
Financial Institutions
Loan demand is reported strong in most parts of the District. In
Arizona and the intermountain states, deposit growth and loan demand
have been strong, and the rate of problem loans continues to
decline. Bank contacts in Oregon and Washington report strong
profits with rising deposits and loan demand. Several contacts
report sharp declines in refinancing demand. In California,
respondents note some increase in lending activity, especially in
home mortgages and real estate construction, although overall
conditions remain soft.