June 13, 1973
Our Directors report continued strong expansion in the Twelfth District, but are divided on whether the expansion will continue unabated into 1974, or will slow in the second half of 1973. Principal strength centers in consumer spending and business outlays for plant and equipment. Agricultural prospects appear good, except in areas suffering from drought. Banks report strong loan demand, principally for consumer credit and business loans.
Economic activity is at a high level in all regions of the District. Most Directors think that this expansion will continue for the rest of the year, although some anticipate a slowing in the second half of the year in response to a slower pace of consumer expenditures for durable goods, a decline in exports, and fewer housing starts. Consumer expenditures currently are at a very high level, particularly for autos and durables. Among other industries exhibiting high rates of expansion are electronics, recreational vehicles and aerospace. Homebuilding has slackened, but there is considerable strength in nonresidential construction. The impetus of recent construction demand also is supporting a high level of orders for builders' hardware. Problems may develop later this summer according to some Directors, who think consumers' purchases of durables will decline. Another concern is the possible impact of gasoline rationing. Unemployment may increase in areas dependent upon tourism, if a serious gasoline shortage develops.
Reports from District agricultural areas generally indicate excellent crop prospects, the exception being the wheat-growing areas of Eastern Washington and Oregon, which have experienced drought. Generally, farmers are optimistic that above-average prices will hold and are continuing to invest in new equipment. Orchard crops, such as pears, are expected to be at near record levels. Cattle prices and feed-crop prices are high.
The forest products industry is maintaining output to meet continuing domestic and export demands. Mill prices for plywood and lumber have fallen from 15 to 26 percent in the last month. Despite this decline in prices, however, current employment and production are expected to be maintained for the next few months.
Inflation continues to be a major concern of our Directors. Some Directors believe the ability of the Federal Government to provide firm leadership has been weakened by the Watergate affair. Others are concerned about the impact of restrictive monetary policy and credit market conditions on the economy, and still others are concerned over the impact of possible gasoline rationing. Several Directors feel that, despite the current strength of the economy, businessmen are becoming less confident, and that this attitude will cause a slowdown later this year.
Banks report that loan demand by consumers and business is very strong. Consumers apparently are borrowing heavily to finance purchases of autos and other durables.
Business borrowing appears to be aimed at building up working capital and financing inventories, but bank loans also are being sought to finance plant equipment outlays. In California and Oregon, bankers report that cut-backs in mortgage lending by other financial institutions have resulted in a jump in mortgage loan applications. At the moment, regular business customers appear to have no problem in obtaining credit, which is available but at higher interest rates. In some cases, banks are stressing the need for appropriate compensatory balances. Banks are tightening standards and some marginal borrowers are being screened. In addition, some classes of loans, especially those for speculative purposes, are being restricted.