Beige Book Report: San Francisco
March 15, 1995
Summary
Economic activity in he Twelfth District continues to strengthen
modestly, although there are reports of slowing in some sectors. The
strengthening partly reflects some pick-up in California's still
moderate recovery. Activity continues to accelerate in Oregon, but
growth is easing from high levels in the intermountain states. On a
sectoral basis, retail sales growth slowed in January and early
February, while service sector firms report generally strong demand
and some upward pressure on input prices. Computer, machinery, and
paper manufacturers report strong domestic and foreign demand, while
lumber and aerospace firms show continued weakness. Agricultural
conditions generally are good, with strong exports to Asia
offsetting declining sales to Mexico. Residential real estate
activity has slowed noticeably in most areas, but commercial
markets remain strong in the intermountain states and the Pacific
Northwest. District banks report slow deposit growth, but generally
strong loan demand.
Business Sentiment
Twelfth District business leaders expect national economic growth to
moderate over to next year. About three-fifths of survey respondents
project national output growth to slow to the long-run historical
average pace, after above-average growth last year. One-third of
business leaders expect an increase in the unemployment rate during
to next year, a marked change from he last report when few projected
a worsening in unemployment. Business leaders expect continued
strong growth in District exports to Asia and Europe, but weakness
in sales to Canada and Mexico.
Retail Trade and Services
District retailers report some slowing of sales growth in January
and early February. Food store sales were slow and prices have yet
to rise despite large increases in packaging costs. Consumer soft
good sales also were reported slow, with prices flat or declining.
New car sales in Idaho in December and January were reported down 9
percent from a year earlier. Dealers have increased the use of
rebates and other incentives to bolster sales. Retailers close to
the Mexican border near San Diego report sharp declines in sales
since the devaluation of the Mexican peso. In Idaho and Utah,
reports indicate that entry-level retail workers are increasingly
difficult to hire, and wage have risen 3 to 3 1/2 percent.
Many District service providers report continued strong demand. Software and communication firms in Washington continue to experience strong growth, but note some upward pressure on input prices. Newspapers report excellent demand, but newsprint prices are sharply higher. Lower health care premiums and slower growth in wages for health care workers are reported in the Pacific Northwest. Hotel occupancy remains above 80 percent in Salt Lake City, pushing room rates up 6 to 8 percent. In Southern California, hotel occupancy and room rates are beginning to increase slowly.
Manufacturing
Manufacturing activity remains mixed. Tool and machinery
manufacturers report continued strong domestic and export demand,
with prices rising for heavy construction equipment. Pulp and paper
product orders and prices have increased. Newsprint manufacturers
are operating at high levels of capacity utilization. Conversely,
lumber sales continue to slow and prices are well below year earlier
levels. Aerospace manufacturing remains weak, as lower production at
Boeing is expected to lead to layoffs at its suppliers in the region
this year. An additional 3,700 layoffs are expected at the Hanford
nuclear facility in Washington by September 1995.
Agriculture and Resource-Related Industries
Agricultural and resource industry conditions generally are good.
Total District agricultural exports continue to grow, as rising
exports to Asia offset slowing sales to Mexico. Arizona and
California cotton producers report high production, prices, and
export sales. Washington apple exports are reaching Japan for the
first time, but sales to Mexico have slowed substantially. Cattle
prices have risen, but reports from Arizona indicate that beef
exports to Mexico have virtually stopped. District farmers report
lower feed grain prices and significantly improved water
availability, but pesticide and chemical prices have increased. Farm
worker wages are reported flat in most areas.
Timber exports to Japan have increased in response to demand from the Kobe earthquake rebuilding effort. Electricity prices in the Pacific Northwest are expected to remain low through the summer because of abundant hydroelectric supplies.
Real Estate and Construction
Residential home sales and construction activity are reported to
have slowed in most areas. Even with the recent slowing, the level
of activity remains high in Arizona, Idaho, Nevada, Oregon, and
Utah; upward pressure on construction materials prices is reported
in those markets. In California, home sales are reported to have
slowed from 1994's pace, but sales and construction activity are
expected to strengthen during the remainder of 1995.
Commercial markets are strong outside of California. In Salt Lake City, low office, industrial, and retail vacancy rates are spurring increases in rents and building activity. In downtown Portland, Oregon, office vacancy rates are the lowest in the nation, and rents are reported rising. Likewise, commercial and industrial office vacancy rates are falling and rents are rising in the Puget Sound area. Commercial office vacancy rates remain high in Los Angeles and San Francisco, and little new construction is reported, but some improvement in activity is expected during 1995.
Financial Institutions
Banks in most parts of the District report slower deposit growth,
but generally good loan demand. Consumer and business loan demand is
reported strong in Southern California. In Northern California, loan
demand is weaker, with competitive pressures on loan pricing and
underwriting criteria. Some reports from Oregon indicate a recent
slowing in loan demand. Upward pressure on wages are reported for
entry-level workers at Oregon banks. Loan demand and quality remain
good in Utah.