January 17, 1996
Summary
Reports from the 12th District indicate some signs of moderation in
District economic activity entering 1996, although robust
performance in several states continues. Holiday retail sales
figures generally were disappointing, notably in California. There
are signs of weakening demand in a few manufacturing industries, but
the electronics sector remains strong. Loan activity is moderate to
strong, with reports of a significant expansion of consumer loans in
Southern California.
Business Sentiment
District respondents revised downward their expectations for
national and regional economic conditions between late November and
early January. The fraction of respondents expecting slowing GDP
growth and rising national unemployment increased. Among
respondents, 38 percent now predict slowing GDP growth and 49
percent predict higher unemployment over the next year, up from 8
percent and 18 percent in November. However, none of the respondents
predicts a recession in 1996. Most respondents continue to expect
that District growth will be more rapid than in the nation as a
whole, but they are somewhat pessimistic about future housing starts
and consumer spending in the District, with higher percentages of
respondents predicting weakening in these areas compared to
November.
Retail Trade and Services
Holiday season sales reports are mixed. Respondents in California,
Arizona, Washington, and Hawaii generally report weak sales growth
relative to the 1994 holiday season. Reports from other states vary,
although overall sales appear to be below expectations, with only
modest increases in boom states such as Utah, Oregon, and Nevada.
Strength in retail electronics sales was generally offset by
weakness in sales of other goods, particularly apparel.
Other reports suggest that some small firms were hurt by the lack of Small Business Administration loans during the federal government shutdown. Tourist trade also was hurt by the shutdown, which reduced government-sponsored conference travel and sales for businesses in or adjacent to National Parks. Skiing and related hotel revenues remain lower than usual due to continued unseasonably mild weather in traditional winter tourist regions.
Manufacturing
Reports on District manufacturing activity are mixed. Utah machinery
producers continue to benefit from strong sales in Utah, Nevada, and
Idaho, and demand for skilled labor in Utah -- particularly
machinists -- continues to outstrip supply. However, one Nevada
respondent noted that declining iron and steel prices are a
troubling sign for future manufacturing activity. Several
respondents noted continued excess capacity and rising inventories
at some San Francisco Bay Area semiconductor manufacturing firms.
General electronics demand, however, is reported to be strong in the
San Francisco Bay Area and in Washington state, where order backlogs
are high and components remain in short supply. Demand for wood
products is off in the Northwest, due to cutbacks in construction
activity nationally.
Agriculture and Resource-Related Industries
Production costs for grain growers remain very high. The resulting
high grain prices are squeezing dairy and cattle producers, causing
high supply and low prices for cattle in the District. In Central
California, final cotton yields were very low and growing costs
high, due to insect problems. In Idaho, a respondent notes that
national demand for fishery products is low and prices are
declining. A more upbeat report from Nevada suggests that strong
copper prices and steady gold prices are sustaining the metal mining
industry, which experienced substantial employment growth over the
second half of 1995.
Real Estate and Construction
Reports suggest mostly solid residential building and sales
activity. Home loans and housing starts reportedly are increasing in
California. Construction activity is holding steady in Arizona, but
the construction labor market is not as tight as it was earlier in
the year. In Washington, a respondent notes that real estate loans
have increased significantly over the last two months, particularly
for multi-family housing. Prices are rising in many areas of
Washington and Oregon, but they have reportedly dropped
significantly in Boise, Idaho and in south central Washington, in
the latter case due to cutbacks at the federally funded Hanford
nuclear facility.
Financial Institutions
Solid bank performance continues throughout most of the District,
although employment in the financial sector continues to shrink.
Bank profits reportedly are high in Utah and Idaho, and in
Washington conditions are generally good, albeit with signs of
slight downward pressure on loan margins. Real estate loan demand
reportedly is strong throughout the District. In Southern
California, rapid expansion of consumer loans is reported,
accompanied by only slight moderation in recent solid growth in
commercial and industrial lending. In Central California, insurance
employment is expected to increase due to the opening in Bakersfield
of a new regional office for a large national insurance company.