Beige Book Report: San Francisco
November 1, 1995
Summary
Moderate economic growth continued in the early fall in the Twelfth
District. Survey respondents noted relatively strong growth in Utah,
Oregon, and Nevada, with weaker conditions exhibited in parts of
Southern California, Hawaii, and Idaho. Overall, retail sales growth
reportedly slowed in recent months, but demand continues to be
buoyed by strong business investment. Residential real estate
markets are mixed. Manufacturing activity is benefiting from rapid
growth in export demand, although sales of some items to Japan are
off noticeably. In agricultural markets, the expansion of exports is
buffeting some of the effects on profitability from weak yields on
certain crops. Labor markets are tight in several states,
particularly for skilled, technical, and construction trade workers
in fast-growing states. The labor market tightness has translated
into only limited upward pressure on total labor costs, however, as
increases in benefit costs have slowed and workers reportedly are
focusing more on job security than on wages.
Business Sentiment
Businesses in the District are more optimistic concerning national
and regional economic conditions, with 90 percent of respondents now
expecting national growth over the next four quarters to match or
exceed its long-run average pace, up from a recent low of 65 percent
of respondents in June. The majority of respondents expect no
substantial change in national unemployment or inflation in the
near-term. Respondents' expectations for their regional economies
are particularly optimistic, with 58 percent predicting better
growth in their region than in the U.S. as a whole. This optimism
extends to most major areas of activity, with expected improvements
in business investment, consumer spending, housing starts, and
international trade in the District.
Retail Trade and Services
Retail sales in many District states reportedly slowed in recent
months. Sales of soft goods in particular have been flat. However,
most respondents report relatively low levels of retail inventories
prior to the arrival of the holiday season merchandise. Retailers
generally are optimistic about the prospects for holiday sales.
Among District service-producing industries, tourism continues to be a major source of growth. Increases in German and British tourist traffic were reported in Utah and Southern California. Asian tourism in Hawaii remains at high levels, although Japanese financing of the infrastructure for that industry reportedly is retrenching. Despite some restructuring, health services industries are expanding rapidly in states with strong population gains; in Oregon, for example, demand for primary care physicians is up, though hospital beds remain in excess supply. The demand for commercial legal services also is reported to be expanding in the Pacific Northwest.
Manufacturing
District manufacturing activity continued to expand in early fall,
pushing production near capacity and adding to substantial backlogs.
In Nevada and Utah, respondents report that demand for machinery and
fabricated metal products increased further. In California, demand
for ferrous metal products is also strong. In several District
states, rapid growth of domestic electronic equipment sales has been
augmented by strong exports to Europe and Asia. However, exports of
wood products to Japan reportedly dropped off recently, and overall
orders for wood products also are down.
Agriculture and Resource-Related Industries
The effects of poor weather in California earlier this year are
still being felt in the agricultural sector, with low yields for
some crops, and reportedly low income despite consequent higher
prices. Agricultural exports from the California Central Valley,
however, are up, as are Washington apple exports. Much of the new
export demand comes from Asia (due in part to the lifting of trade
restrictions on China and Vietnam) and South America. Export sales
of wheat are particularly high.
Real Estate and Construction
Residential real estate and construction activity remains mixed. In
fast-growing states such as Utah, Oregon, and Arizona, building
activity is expanding but being constrained somewhat by high wages
caused by shortages of qualified help. In Alaska, the development of
single-family and multi-family housing projects reportedly picked
up. Residential building slowed in Idaho and Washington. Sales of
existing homes reportedly remained weak in Southern California, and
prices continued to fall; in contrast, sellers in parts of the San
Francisco Bay Area reportedly are receiving higher prices.
Activity in the non-residential sector reportedly increased in recent months. The commercial real estate market in Oregon and Washington reportedly has heated up enough in recent months to attract investors who had retreated from the market earlier. Further expansion of resort facilities in Nevada has contributed to construction activity there, albeit at a less robust pace than last year.
Financial Institutions
Banks report favorable conditions in most of the District, with high
loan demand, solid balance sheets and earnings, and good credit
quality. The exceptions are in Hawaii, where increasing credit
problems are reflected in increases in bankruptcies and
foreclosures, and in parts of Southern California, where loan demand
is low. For California as a whole, banks report flat to moderately
growing loan volumes in early fall, with the strength concentrated
in commercial and industrial lending.