March 9, 1971
There has been no basic change in the attitudes of businessmen in the Twelfth District. They see little sign of further declines in economic activity, but they also see little sign of an immediate recovery. To some extent, this situation is a reflection of continued cautious spending by consumers. Banks report continued increases in deposits, but no equivalent rise in loan demand.
Most of the businesses contacted in the District report no change in their spending plans. They are awaiting further increases in orders before instituting expansion plans. There are regional variations from this general picture. In Arizona, new orders were up in February after two months of declines, and production is at the highest level since last March. In Utah, mining and manufacturing are doing well, but in Southern California, the problems of Lockheed are causing some concern and adding to feelings of uncertainty. Many vacant industrial properties in Southern California are on the market without much interest being expressed at this time by prospective tenants. On the District level, business inventories have stabilized at present levels and further declines are unlikely.
The level of unemployment has stopped rising in most areas. Small employment increases are reported in Arizona and Southern California, but Washington continues to have problems as the rate of registered unemployment was higher again February.
One industry that is expecting a mild recovery is lumber and plywood manufacturing. Production is rising and some mills have reopened in Oregon and Washington. Although lumber prices have risen, some manufacturers feel that the upward pressure may diminish somewhat between now and the spring building season.
Consumer spending has been cautious. Retailers have reported some successful post-Christmas sales, but the volume was approximately the same as in 1970. Consumers are not making greater purchases of big-ticket items, such as refrigerators and furniture, and they are very price-conscious in their buying attitudes. Generally, sales of durables are sluggish. Another aspect of this same situation is a higher rate of repayments on consumer credit. Overall, retail sales are only slightly higher than in the same period last year, but retailers expect the sales picture to improve later in the year.
Automobile sales reflect this greater caution on the part of consumers. In most areas, sales are described as slow and this is true even in such otherwise buoyant areas as Arizona, where auto sales are at approximately the same level as last year. The one category generally singled out as registering increasing sales is that of foreign-made cars, there are also some reports that sales of domestic compact cars and used cars are relatively strong.
Banks continue to experience rising deposits but little change in loan demand. Business loan demand is stable, despite efforts of individual banks to generate more loan activity. There has been no marked increased in mortgage demand, despite lower interest rates. In particular, savings and loan associations have had difficulty in generating sufficient loans to utilize their heavy inflow of savings. The savings and loans are attracting some funds because they have not lowered their interest rates, while banks have cut their CD and consumer-type deposit rates. Some banks report that they are considering the possibility of lowering the passbook savings rate, but none has done so yet. There are some banks, however, that have not cut their CD and time deposits rates. Most of these are smaller banks, with the exception of one large California bank that is actively promoting its higher rates on consumer-type time deposit. In summary, the banks have sufficient funds to meet an increase in loan demand, and in the meantime, there is downward pressure on interest rates.