Beige Book Report: San Francisco
September 13, 1995
Summary
The economy in the Twelfth District expanded moderately in recent
months. Retail sales reportedly improved after earlier weakening,
and manufacturing activity strengthened in some areas. Although
residential real estate and construction activity continued to be
mixed, non-residential construction increased in many states.
Consumer and construction loan volumes picked up at some District
banks. Agricultural production was held down by weak yields for some
crops.
Business Sentiment
Twelfth District business leaders' expectations for national
economic growth improved recently, after deteriorating in early
summer. The fraction of respondents expecting national growth to be
weaker than the long-run average dropped in recent months, from
about 35 percent in June to about 20 percent currently. Also, only
about one-third of respondents expect the national unemployment rate
to increase over the next year, down from the two-thirds who made a
pessimistic assessment in June. Expectations for regional economic
growth have been revised up slightly on the basis of an improved
outlook for residential construction and consumer spending.
Retail Trade and Services
Retail sales reportedly improved in mid-summer at some types of
stores. District retailers indicated that sales at food stores and
auto dealers rebounded in July and early August from the weak June
levels. However, apparel sales continued to be soft, which prevented
retailers from adding larger markups to clothing prices. Among the
states in the District, sales in California remained at much higher
levels than a year earlier, and sales in Washington state increased
moderately. Retail sales in Utah reportedly slowed.
District service-producing industries generally noted continued strong demand, with the exception of some providers of transportation services to business. Truck and rail cargo volumes in the District reportedly have been weak so far this year, given the earlier dropback in some types of manufacturing activity. In Utah, tourism traffic remained at elevated levels, keeping hotels relatively full and fostering room rate increases at a 9 percent annual pace.
Manufacturing
District manufacturing activity reportedly is strengthening in some
areas. In Utah, a manufacturer indicated increasing demand for
construction and mining equipment. A California metal fabricator
mentioned that aluminum suppliers are reversing earlier price cuts,
owing to increased demand for ingot. The electronics manufacturing
industry remained very strong in California. In the Pacific
Northwest, producers reported that sales of pulp and paper remain
firm, and wood product sales improved. A manufacturer of paints
noted strong growth in offshore business, which led to some problems
obtaining raw materials as well as to large increases in product
prices.
Agriculture and Resource-Related Industries
Recent yields on several agricultural crops have been low, leading
to price increases for some commodities. Cotton yields are down, and
prices are expected to be higher this season. District cattle
ranchers reported that weak harvests of corn and other feedgrains
boosted feed costs, leading to a desire to liquidate much of the
cattle inventory. However, export demand for beef and other
agricultural commodities reportedly has been strong, providing some
offset to the impetus to cut product prices. In contrast, there were
high yields on table grapes at vineyards in California.
Real Estate and Construction
Residential real estate and construction activity has been mixed. In
Oregon, residential activity reportedly remained strong in the
western portion of the state, but pockets of excess inventory of
homes for sale have arisen elsewhere in the state. Reports on
residential construction activity in Utah varied by local area, with
some respondents noting strong gains and others indicating that
construction of new homes slowed significantly. In northern Nevada,
home sales increased sharply. In the San Francisco Bay Area of
California, residential markets reportedly improved slightly, with
particular strength in the Silicon Valley. In Southern California,
residential sales and prices had been falling sharply, but some
respondents indicate that conditions stabilized recently.
Non-residential construction increased in many areas, leading to some additional tightness in the market for construction labor. Major projects for hotels in Nevada and for manufacturing facilities in Oregon and Utah reportedly are creating higher demand for skilled construction workers, and respondents in such fast-growing areas reported difficulty in obtaining bids on small construction projects.
Financial Institutions
District banks generally noted favorable conditions. In California
as a whole, loan demand appears to be picking up gradually, with
renewed growth in consumer lending and in real estate refinancing.
However, some banks in Southern California suggested that consumers
appear to lack confidence and businesses still are reluctant to make
capital expenditures.