April 12, 1972
In the view of our directors, economic conditions have changed little from those of previous months. Consumer spending and construction remain the most important sources of strength. The agricultural outlook is also favorable in most areas and for most crops. On the other hand, business investment expenditures continue to be relatively cautious, and this situation is mirrored in bankers' reports of moderate, rather than strong, business loan demand.
Our directors were asked to assess prospects for construction during the coming year. Most directors expect a continuation this year. Single-family home construction has been stimulated by the recent reductions in interest rates and the greater availability of finance. Developers in many areas have had little trouble in selling houses, especially in the medium-priced range. But nevertheless, developers have been somewhat cautious. For example, new tracts have tended to be moderate-sized, and construction has been kept reasonably close to sales. As a result, there is little evidence of large-scale speculative building of homes. The areas with strongest demand are southern Arizona, the San Diego and Orange County areas of southern California, and Portland.
Commercial building and government projects, particularly for highways and bridges, provide the other major components of construction demand. In particular, there are good prospects for maintaining the recent pace of construction of office building in the San Francisco area and in Los Angeles. A major redevelopment project is being considered in the San Francisco area, and several large buildings have been announced for Portland. State expenditures for highways and bridges in California and Oregon are expected to contribute to construction activity.
Apartment construction, in contrast, shows a more mixed pattern. In some areas, multi-unit construction is strong and vacancy rates are low—for example, Portland and much of southern California—but in other areas there is concern about overbuilding and the possibility of higher vacancy rates—for example, Salt Lake City and Los Angeles.
The state of Washington, which still suffers from high unemployment, remains the major exception in this favorable construction picture. Construction activity has recovered from the low levels of 1970, but, in general, it is not expected to be much higher than that of 1971. Residential construction in the Seattle-Tacoma area is described as "sporadic," and there is little incentive for much new construction. Commercial and government projects have helped, but overall the rate of growth of construction is expected to be moderate. Within the state, only Spokane is expected to have a record level of construction activity during the coming year. Spokane had not expanded as much as Seattle or Tacoma during the previous years, and the local economy has buoyant prospects for the immediate future.
Retail sales have remained good, with increases in the 5 to 10 per cent range being common. Durables seem to have done better than average, but occasional weakness in soft goods lines has been reported. Both domestic and foreign automobiles are continuing to experience steady sales, even though the latter have had some inventory shortages. At the moment, auto dealers expect one of their best spring seasons, even in such high unemployment areas as Seattle.
Most of our directors in agricultural areas report good prospects for the coming year. Wheat prices are described as rising, and cattle prices are holding steady. Certain fruit crops remain exceptions, and recent late frosts resulted in serious losses for various fruit crops in Utah and for grapes in California.
Business investment plans remain cautious, and no major revision of expectations is apparent. As an indication of this situation, most bankers report that business loan demand has been steady rather than strong. There are a few exceptions where individual banks are experiencing strong demand, but the majority indicate little change from recent trends. The one major exception remains construction and related loans, where demand is strong. Real estate and consumer installment lending are also continuing to rise.