November 10, 1971
According to our directors' reports, economic activity in the Twelfth District is continuing to grow at a steady pace. Most of the strength continues to come from the consumer sector and construction, particularly residential building. The end of the West Coast dock strike is another favorable factor for many businesses' prospects. On the other hand, there is no sign of any vigorous upswing in business capital expenditures beyond recent levels.
Significant increases in consumer spending occurred in October. In some cases, retailers reported increases 15 percent over the previous year's sales, including consumer durables, whose sales had been slow. Auto sales are also stronger. Much of the increase reported occurred in September, and sales seem to be somewhat slower in October. Domestic car dealers expect a good year, and their principal concern seems to be slowness in deliveries from the factory. Foreign car dealers, in contrast, are less optimistic because of the effects of the import surcharge and the disruption caused by the dock strike in delaying shipments of new cars.
Construction activity is the other important source of strength. Activity is centered on single-family building, while construction of multifamily units is slowing because of higher vacancy rates. The continued inflow of funds, particularly into savings institutions, has insured a steady flow of finance to builders at somewhat lower interest rates. One director in southern California reported that this ready availability of funds is encouraging further building of multifamily units, despite a local surplus.
Unemployment rates continued near 12 percent in the Seattle-Tacoma area. According to some of our Seattle directors there is no evidence that unemployment will be reduced in the immediate future, and it is expected to increase seasonally during the coming winter months. The area has a considerable surplus of warehouse and office space. Although some businesses, particularly those which are medium-sized and serving national rather than regional markets, are doing well, they are not able by themselves to bring about any major reduction in local unemployment.
Our directors were asked to assess the prospects for increased capital expenditures in the light of recent changes in economic policy. The general consensus was that there would be no immediate increase; current projects were being carried through, but few revisions of plans have occurred. The explanation was that uncertainty about the policies to be followed in the so-called Phase II has led businesses to be cautious until the direction of policy is known. Once the wage and price guidelines are established, they should be more willing to undertake increased investment. Only one director reported actual examples of increases, but both of these projects were contingent upon the passage of the tax benefits proposed by the President, and in any event both projects are scheduled for a 12-month completion date.
District agriculture has been experiencing a good year in terms of market prices and yields. The exclusion of agricultural prices from the price freeze has not resulted in any jump in market prices. In practice, the inability of buyers of farm products to pass along price increases has limited the prices they are willing to pay. One director reports that livestock prices have been held to 3 to 5 percent below the ceilings for dressed meat.
Banks' deposits have been gradually rising. On the loan side, the greatest demand has been for consumer installment credit and real estate mortgages. Commercial loans have not been showing any strength in most parts of the district. With the exception of minor reductions in interest rates, the lending and investment policies of the district banks have been basically unchanged during the past month.