Business activity in the Twelfth District has shown only modest expansion in recent weeks, with rising residential construction continuing to provide the principal stimulus in the economy. This in turn leads to greater demand for the products of the lumber industry on the Pacific coast. Consumer spending remains at a stable level but is showing comparatively little growth. This characteristic of only very slow growth at present also is reflected in the views obtained from bankers and businesses concerning current and prospective demand for business loans, although there are some regional differences in this regard.

Construction activity continues to be a source of strength in most parts of the District. Housing starts are higher in Seattle, Portland, and in the major markets of California. Bankers note an accompanying increase in the demand for real estate loans despite the recent rise in mortgage rates. The only evidence of overbuilding reported involves
multiple-units. In southern California, for example, some new apartment projects have been reduced. Nonresidential building is showing a recovery, particularly in government construction projects.

The continued expansion of housing has benefited other related industries. The lumber industry in the Pacific Northwest is continuing to expand production. Construction suppliers report heavier sales and they are hiring more workers. One major hardware supplier has increased its work force by 5 percent and put some of its plants on overtime.

Consumer spending is steady rather than growing. In some areas, appliance sales are higher but there are other reports of sluggish sales activity. According to one director, June retail sales in California of one national chain are below average compared to its sales in the rest of the Nation. A major oil company reported that its gasoline sales in June were 4 percent below those of a year ago. Heavy advertising seems to be necessary to stimulate retail buying and, overall, the pressures to build up retail inventories are weak.

Strikes have hindered the economic expansion. In particular, the railroad strikes have caused problems to shippers, especially of agricultural products. Similarly, the copper strike had hurt activity in Utah and Arizona. Of continuing concern is the dock strike in Pacific coast ports. This strike is affecting a widening number of industries and agricultural producers throughout the District.

Directors of our Head Office and Branches were asked to comment on the current and prospective demand for business loans and a few additional banks also were contacted in this regard. The predominant reply among bankers is that they expect business loan demand will continue to run at about its current rate in the next two months. Current demand is variously described as "soft," "weak," "flat," and in some instances, "moderately good" to "strong." Regional differences are apparent in the replies.

Current and prospective demand is reported generally to be "moderately good" in Oregon, Utah, and Idaho where unemployment rates are lower than in some other areas of the Twelfth District. Lumber production in Oregon is rising as a result of the increase in residential construction and mills are stocking logs in preparation for the winter season when logging operations are curtailed. Loans to food processors in that area are also larger than a year ago. In Utah, the strengthening in loan demand reflects a gradual expansion in the economy on a broad front.

Bankers in California and Washington are less optimistic with respect to business loan demand, which reflects in part the relatively higher levels of unemployment in those areas. Within California, there seems to be slightly more optimism in the Los Angeles area than in San Francisco. Two major banks headquartered in southern California reported that business loan demand is rising at a moderate rate and probably will continue to do so in the next few weeks. Other banks in northern and southern California characterized their loan demand as stable or flat and reported little prospect of significant growth in the near future. In nearly all cases, banks did not think that repayment of loans from the proceeds of flotations had been a significant factor in restraining the growth in their volume of business loans outstanding.

The reports from directors associated with nonbanking firms seem to substantiate the predominant view obtained from bankers that no significant upsurge in business loan demand is likely to occur in the next few weeks. With the exception of one or two firms which plan some plant expansion that will be financed initially by bank credit, the remaining enterprises do not foresee in the near future any change in their need for bank credit.