January 10, 1973
Business activity in the Twelfth District continues to be strong, and our directors are optimistic about continued strength in 1973. Retail sales reached record levels in the District during December, and consumers are expected to maintain a steady demand for goods and services during the coming year. Banks report year-end gains in deposits and steady loan demand.
December retail sales were reported to be 10 percent to 12 percent higher than in previous years in most areas. This demand was broadly based, but sales of furniture and other durables were noted as being particularly good. One director in California reported that jewelry stores in his locality had sales increases of up to 20 percent. A similar situation exists for automobile sales. New car dealers had excellent sales during December, and at the same time dealers' inventories are at more satisfactory levels. As a result, dealers are expecting an excellent year for automobile sales. In general, consumers are regarded as being in a more confident mood and likely to be a major stimulus for the economy in 1973.
At present, construction activity is being maintained at recently established levels. In a few areas, such as Utah, there has been a seasonal decline, but in other areas, such as Phoenix and San Diego, there has been greater activity. In California, there remains some uncertainty about the impact of required environmental studies, but this problem should be reduced as experience is gained in preparing the necessary studies. As has been the case in recent months, higher vacancy rates in apartments are exerting a restraining influence on multi-unit construction in many areas.
The overall level of construction activity is sufficiently high that our directors single it out as the principal industry where there exists a shortage of labor. The demand is highest in the skilled trades, such as plumbers and electricians. The timber industry is another industry operating at near capacity and experiencing difficulties in finding some classes of workers.
In most other industries, the supply of labor both skilled and unskilled is sufficient for expected needs in 1973, even though shortages of specific skills do exist. In a few cases, layoffs are adding to unemployment. For example, Lockheed is laying off 1,000 people at its Sunnyvale, California, plant and many of these workers are in skilled trades. The consensus of our directors is, despite their optimistic view of the economy, the rate of expansion in 1973 will not result in a substantially lower unemployment rate.
Most banks in the District appear to have had substantial gains in deposits. Both savings and demand deposits are higher, and the banks expect to be able to meet most demands for credit without difficulty. Some interest rates, such as those on commercial loans, are moderately higher, but mortgage rates are described by one banker as being softer.