May 5, 1971
There has been no major change in the pace of economic activity in the view of businessmen and bankers in the Twelfth District. The economy is in a period of gradual expansion, but the general outlook is one of caution. This caution is reflected in reports that no pronounced rebuilding of inventories is under way. Businessmen seem to be awaiting a stronger rate of expansion before committing themselves to carrying heavier inventories.
Housing and related forest product industries are showing the most consistent expansion. Housing construction, especially residential, is to increase, and there also are reports of a more active market in sales of existing homes. Part of this activity is due to lower mortgage rates. On the other hand, vacancies are high in some areas for some industrial property. One banker in southern California notes a significant vacancy factor in industrial and commercial properties.
There is little evidence that businesses are rebuilding their inventories to any degree. This is the general feeling of our Head Office and Branch directors who were asked to comment on this question. There are exceptions but, overall, their impression is that businesses are continuing to hold inventories at present levels. The one major exception is in steel and related production, where the possibility of a strike is generating heavier orders. Inventories of building materials and some kinds of lumber also are being increased in expectation of a higher rate of construction. Retailers seem to be increasing inventories only moderately, and auto dealers have completed their post-strike restocking. In summary, optimism about the general economy is not appearing in attitudes about inventories.
Retail sales are rising at a moderate pace. Major chain stores, in particular, are doing quite well in most areas through heavy promotional efforts. In Arizona and eastern Washington, average increases of 12 to 20 percent over the same period of last year are reported. Despite these exceptions, consumers are cautious in their buying and retailers expect no major jump in consumer spending.
Reports from agricultural sections of the District indicate a satisfactory level of prices. Cold storage facilitates for local fruits and vegetables are being expanded in eastern Washington. Good wheat crops are expected in Idaho and Washington. Similarly, prospects for agriculture in the central valley of California have improved, as prices have risen for most crops and dairy products. Idaho agriculture does have a problem, however, in the large carry-over from last year's potato crops. Much of this is still in storage, and potato prices are expected to be lower.
Bankers continue to devote efforts to expanding their loans, especially commercial and industrial loans, as their deposits have continued to rise. Rates paid on time and saving deposits show considerable variation from bank to bank. Some banks have kept the 4 1/2 percent rate on passbook accounts. Usually, these have been smaller banks, although some quite large banks have maintained their rates. Some banks report a shift from time CD's into consumer-type savings instruments, and they have increased slightly their CD rates. Demand deposits are higher for most banks. Savings and loan associations are also gaining funds and, in consequence, mortgage money is readily available in most parts of the District.