June 2, 1971
According to reports received from bankers and businessmen in the Twelfth District, there has been no major change in the general pace of economic activity. Growth is at a moderate rate, as consumer spending remains steady and business investment plans are cautious. The recovery of the housing industry and the real estate markets is expected to be a growing element of strength in most areas, but the aerospace industry continues to cause problems in Washington and parts of California.
Our directors were asked to comment on investment activities in their area or industry. Most reported that, in the absence of a stronger expansion in demand, there would be no major increase in investment expenditures. Industrial firms are either carrying through programs planned earlier in the year without any recent upward modification or else limiting themselves to projects which promise immediate benefits in the form of cost reduction. Certainly there is no evidence that inventories are being built up. Firms continue to keep inventories closely tied to sales in order to reduce costs. A major oil company, for example, describes its inventories as "low but manageable." On the other hand, public investment is expected to be heavier in some states and large office building projects are continuing to be important in many of the major cities in the District.
The greatest weakness is in those areas where the aerospace industry is important. The Seattle-Tacoma District of Washington continues to experience low or declining retail sales and a stagnant real estate market. A further reduction in aerospace employment is expected. However, the local economy is described by one director as having reached a "hard floor" under personal income, but there will be no turnabout until the spring of 1972. The problems of Lockheed are causing further uncertainty in those parts of California where that firm and its principal suppliers are located; suppliers to the aerospace industry are reported to expect no pickup this year and very little next year.
The amount of vacant industrial property continues to rise in southern California. As one example, the vacancy factor for industrial buildings is 25 percent in some parts of Orange County.
Housing activity continues to grow in most states of the District. Commercial construction, especially large shopping areas and multistory buildings, continues to be important in California, Idaho, and Utah. Several large banks, for example, are constructing large, new head offices. The greater availability and lower cost of mortgage funds in the past few months has helped to stimulate real estate sales and construction activity.
The greater construction activity has helped the forest products industries, but the demand from construction is not sufficient to bring about a full recovery in that industry. The demand for plywood is weak, and prices for that particular product are falling. In western Washington, wood products are described as facing a poor market after anticipating an improvement, while in parts of Oregon, lumber mill employment is higher.
The prospects for agriculture are mixed. In western Washington, wet weather has created poor prospects for the local fruit crop. In Idaho, the picture for cattle prices is good, while that for the potato market is still uncertain because of the large carry-over from the previous crop.
Retail expenditures remain one of the stronger sources of demand, yet the rate of growth has not been great. Retail sales in some areas are reported as being at only the same level as last year, while in other cases, appliance sales are running 10 to 15 percent above levels of last year. New car sales are improving, but much of this activity is due to sales of small foreign cars. Overall, consumers are described as cautious.
Bankers continue to experience inflows of deposits, especially
savings deposits. Also, there has been some firming of the demand
for business and mortgage loans. Many banks are still attempting to
expand their lending to make use of their larger supplies of funds.
There has been some adjustment in interest rates., In most cases,
the prime rate has been adjusted upward but not other lending rates
to any degree. Most, but not all, banks have lowered their passbook
savings rate
to 4 percent.
In summary, there has been little change in economic or financial conditions, and the general expectation is for a continued gradual expansion of the economy.