Beige Book Report: San Francisco
August 3, 1994
Summary
Economic conditions in California continue to be sluggish, while
conditions in most other parts of the Twelfth District remain
strong. Business leaders outside California still are optimistic
about economic prospects, while those in California are less upbeat.
Retail sales reports are generally good. Tourism activity this
summer has been strong in many parts of the District. Manufacturing
activity remains mixed. Oil prices have rebounded, but exploration
activity remains weak. Construction and real estate activity remain
strong outside of California, while the level of construction
activity in California is higher than a year ago but down from the
first quarter. Lending activity is growing in most parts of the
District, including some improvement in California.
Business Sentiment
Twelfth District business leaders generally remain optimistic. About
three-fifths of respondents expect national growth to exceed 2 1/2
percent during the next four quarters. Growth expectations continue
to be strongest among residents in the intermountain states and
Arizona, while more than half of California respondents expect the
national economy to grow only slowly during the next twelve months.
Almost two-thirds of respondents now expect the trade balance to
improve during the next four quarters, up from about half in
February.
Retail Trade and Services
Retail and service industry conditions generally are strong in most
parts of the District. In California, retail sales have strengthened
modestly, and prices for consumer nondurable goods show little
increase. Automobile sales arc reported up in Southern California.
In the intermountain states, retail sales are generally strong. Food
stores in Arizona, Idaho, and Utah report that sales are up from a
year ago, and they are having trouble finding enough entry-level
workers to fill the available slots. In Utah, machinery sales are
reported strong, but retail inventories are rising as consumer
demand has been inconsistent. In Idaho, new car and truck sales were
below expectations in June.
Summer tourism is reported strong in most parts of the District, although the number of visitors is well below last year's level at some national parks in the West. Hotel occupancies are at record levels in Salt Lake City, and at strong levels in Las Vegas and in many coastal and mountain areas of California. In Reno, Nevada, airport passenger traffic has reached record levels. The depreciation of the dollar is expected to boost tourism from Japan and Germany. In fact, the visitor count in Hawaii has risen from its earlier low level, due in part to the higher value of the yen. However, the lower value of the Canadian dollar may reduce the number of "snow geese" traveling south this winter.
Manufacturing
Twelfth District manufacturing activity remains mixed. Aerospace
employment is down more than 10 percent from a year earlier in both
California and Washington. An electronics manufacturer reports
strong growth, with capacity constraints in some areas. A paint
manufacturer reports raw materials price increases of 3 to 5
percent. The decline of the dollar against the yen has boosted
exports of scientific instruments from Arizona.
Agriculture and Resource-Related Industries
Agricultural conditions generally are solid, with substantial
variation among products. Agricultural exports still are strong, and
the falling dollar is expected to help boost exports to Japan even
more. In California, almond prices are relatively strong because of
low carryover stocks from last season. Oregon food processors report
low inventories and high prices for vegetables. High production of
many fruit crops in California has pushed prices lower. Low beef
prices continue to cause large losses for many ranchers.
Oil prices have rebounded, helping producers in Alaska and California's Central Valley. Prices still are too low to spur increased exploration activity, however. In the Pacific Northwest, wood products orders are reported to have improved. Lumber prices remain low, down 30 percent from three months ago, while pulp and linerboard prices are up.
Real Estate and Construction
Real estate markets generally are strong, but weakness still is
reported in many parts of California. Home values and building
activity continue to rise in Utah. Home prices also are reported to
be rising strongly in Phoenix, Las Vegas, Reno, and parts of Oregon.
In California, home price changes vary considerably among local
areas, with little overall trend either up or down. Market
conditions are keeping downward pressure on office rents in San
Francisco.
Construction activity remains strong in much of the District outside of California. In California, both home-building and nonresidential construction activity are above year-earlier levels, but construction activity has slowed since the first three months of 1994. Elsewhere in the District, reports of shortages of skilled construction workers and rising building materials prices are becoming more frequent. In Oregon, materials prices are reported up 10 to 15 percent. Skilled labor shortages in Utah have increased building delays.
Financial Institutions
Banks in most parts of the District report that lending activity is
growing. Loan growth is reported strong in Oregon and Idaho. In
California, loan demand is reported to be showing slow broad
improvement; demand is strongest for commercial and industrial loans
and home mortgages, while consumer lending remains weak.