Beige Book Report: San Francisco
December 6, 1995
Summary
Reports in the 12th District generally point to continued solid
growth and only limited signs of weakness entering late fall. Rapid
expansion continues in several District states, and some California
respondents saw increased business activity. Bank loan activity is
high in the. District, except in parts of Southern California. Some
areas recently have posted weak retail sales--particularly for
autos--and expectations for holiday season sales are mixed in the
District. Business leaders report only weak to moderate upward wage
and price pressure overall in the District.
Business Sentiment
Most respondents in the District predict continued moderate national
economic expansion in the near term, and they remain particularly
optimistic about local growth prospects. Currently, two-thirds of
the respondents predict no change in the national rates of economic
growth, inflation, and unemployment. Among the remaining third, most
are predicting improvements in economic growth and unemployment, and
lower inflation. Furthermore, almost 60 percent predict more rapid
growth in their region than in the nation as a whole, with an even
stronger majority predicting stable or improved business investment,
net exports, housing starts, and consumer spending in the region.
Retail Trade and Services
Despite recent gains in retail employment in most District states,
many respondents note sluggish retail sales in the fall. Auto sales
and leasing are reported low in parts of the District, due partially
to reductions in incentives from manufacturers' financing programs.
Tourism is reported strong in several areas, although continued warm
weather is likely to affect ski areas adversely in the near term.
Increased demand for business telephone services in California
suggests solid growth in business activity in the state. Also,
vigorous growth in District foreign trade is sustaining expansion in
the wholesale trade and business service sectors.
Expectations regarding holiday season sales are mixed. Respondents in a number of states cite consumer caution and debt as factors that could hold down sales. Expectations are more optimistic for Utah and Nevada, where rapid population and employment growth continues, and Oregon, where the effects of rapid growth may be augmented by a recent state income tax rebate.
Manufacturing
District business leaders note expanding output in high technology
and related manufacturing industries, including telecommunications
equipment, electronics, and medical equipment. Growth among small
manufacturing firms is reported to be particularly strong in Oregon
and Nevada. However, there are reports of some slowing in rapid
growth among computer component manufacturers in the San Francisco
Bay Area. Input prices are rising faster than finished goods prices
for industrial machinery and machine tools in the District. Although
Washington state manufacturing employment growth is hampered by a
strike at Boeing, respondents report continued expansion among
smaller manufacturing firms in that state.
Agriculture and Resource-Related Industries
Most areas report high sales of agricultural products. Abundant
water supply has buoyed late season yields on some California crops,
although yields on other crops--notably cotton--are off. Overall,
agricultural exports from California's Central Valley are above
their 1994 levels. Agricultural production and sales also are high
in other states, particularly Washington and Oregon. In contrast,
District cattle ranchers are being hit by a combination of high feed
prices and relatively low beef prices. Also, lumber and wood product
output in the Northwest has been affected in part by the moderation
of national construction activity.
Real Estate and Construction
Real estate and construction conditions vary substantially across
the District Construction activity and demand for residential and
commercial space generally are low in the southern and central
regions of California, although demand for warehouse and
distribution space has picked up. Residential construction and sales
continue to improve in the San Francisco Bay Area. The pace of
construction activity remains rapid in several states, particularly
Oregon and Utah, but some slowing is reported in Washington and
Arizona. Home prices reportedly are rising at 5 to 6 percent annual
rates in faster-growing states, and construction is being held back
somewhat by shortages of skilled labor in those states.
Financial Institutions
Loan demand continues to be strong throughout most states in the
District, and respondents note that competition remains aggressive
among lenders. In parts of Southern California, loan demand
reportedly is light, and some banks are attempting to avert possible
deterioration in credit quality; performance among San Francisco Bay
Area community banks, however, has improved.