May 10, 1995
Summary
Economic activity in the Twelfth District grew at a slower pace in
the first quarter. Weather disruptions caused some slowing in
California's moderate recovery, and growth continued to decelerate
from high levels in the intermountain states. Retail sales growth
slowed further in March, especially for durable goods, and
inventories were reported building for some businesses. Heavy rains
during March were blamed for some of the weakness in California
retail sales and caused substantial damage to several fruit and
vegetable crops. District service sector firms reported continued
strong demand. Among manufacturers, electronics, aluminum, and
machinery producers report strong demand and tight capacity, while
orders and employment remain weak at aerospace and lumber firms.
Residential construction activity continued to slow in most parts of
the District, but commercial activity was strong outside of
California. District banks reported strong loan demand but slowing
deposit growth.
Business Sentiment
Twelfth District business leaders continue to expect national
economic growth to moderate over the next year. About three-fifths
of survey respondents project national output to grow at its long-
run historical average rate during the next four quarters following
above-trend growth in 1994. About half of the business leaders
surveyed expect an increase in the unemployment rate during the next
year. However, respondents from California expect a strengthening in
employment growth for the state. In Southern California, two to
three times more firms plan to add workers than to cut jobs this
year. While further layoffs related to restructuring are
anticipated, they are expected to be on a smaller scale and less
widespread than in the past several years.
Retail Trade and Services
District retailers report continued sluggish growth in sales,
particularly in first quarter sales of durable goods. Auto sales are
reported down in Idaho, Oregon, Utah, and Washington, and motor
vehicle dealers in Idaho have cut their orders to manufacturers
substantially to stem the rise in inventories. Furniture sales for
the first quarter fell below year-earlier levels in parts of Oregon
and Washington. Sales growth of nondurable goods is reported flat or
slowing by many retailers. Department store sales are reported flat
compared with the end of 1994, with inventories reported rising at
general merchandise stores in California. Reports attribute some of
the slowing in California retail sales to heavy rains during the
first quarter.
The District's service sector shows continued strong demand. The tourism industry in Southern California continues to strengthen. In San Diego, the America's Cup is reported to have provided a boost to the growth of visitor spending. Growth in employment in the casino and resort sector in Las Vegas has moderated from the rapid pace of the last several years. Computer service firms in Oregon report rising revenues.
Manufacturing
District manufacturing activity remains mixed, as further weakness
in the aerospace sector in California and Washington is offset by
strength elsewhere. In Oregon, several electronics manufacturing
firms are adding to capacity. In Utah, a major electronic-components
manufacturer announced plans to build a memory chip plant that will
cost $1.3 billion and eventually employ 3,500 workers. Aluminum and
machinery producers report high capacity utilization and lengthening
delivery lead times. Lumber companies report shrinking product
orders and rising inventories.
Agriculture and Resource-Related Industries
District agricultural conditions are dominated by the effects of the
March flooding in California. Flooding caused damage to many tree
crops as well as several winter vegetable crops. Production of some
fruits and nuts will be substantially lower this year. Prices for
some vegetables, especially lettuce, broccoli, and cauliflower, are
expected to remain high through mid-summer. On a more positive note,
the heavy rains filled California's reservoirs, allowing farmers to
receive full irrigation allotments for the first time in several
years.
Natural gas prices are reported well below year-earlier levels as a result of the mild winter. Rising gold and silver prices are reported to be giving a boost to mining employment in Nevada.
Real Estate and Construction
The growth in residential building continues to slow in most areas,
while home sales and prices are reported mixed. In Arizona, Nevada,
and Utah, new home construction generally is reported to be easing
from last year's fast pace, although multi-family construction
remains strong in Las Vegas. In Oregon, housing starts are reported
down slightly from a year earlier. Home sales still are reported
strong in Oregon, but in Idaho home sales are slowing at the higher-
priced end of the market. District home prices are reported mixed,
with prices up slightly in Los Angeles, flat in Seattle, and
continuing to rise in Phoenix and Tucson.
Commercial construction activity remains weak in Los Angeles, but is strengthening in other parts of the District. In Las Vegas, commercial vacancy rates are low and rents are reported rising. Alaska commercial construction activity is being fueled by several public works projects.
Financial Institutions
District banks report generally strong loan demand but slowing
deposit growth. In California, commercial and real estate lending is
reported strengthening, while the level of consumer installment debt
outstanding continues to decline. Commercial loan demand has
increased sharply in Arizona, but mortgage applications and deposit
growth are weak. Banks throughout the District report continued
efforts to reduce employment and overall costs.