October 10, 1973
General economic conditions are unchanged from those of last month. Spending by businesses and consumers remains strong, and the agricultural sector expects excellent crops with high prices. Housing construction is the only major sector which is experiencing a decline. Although there is some variation in their views, our directors expect a slowing of growth later this year.
Business investment is being maintained at high levels in such industries as electronics, fertilizers, and chemicals. In Washington, Boeing has received increased orders which may boost employment still higher. One limitation on the part of greater output has been slow deliveries, particularly in metals and some lines of chemicals. In the Pacific Northwest, unusually low rainfalls may result in power shortages which could force rationing and cause manufacturing layoffs. In Oregon, the governor has ordered that all outdoor commercial display lighting be turned off to save power.
Consumer spending is being maintained in most areas of the district. Household durable goods sales are continuing to hold up despite previous forecasts of a decline. There are, however, exceptions. A major department store in Salt Lake City reported a 10 percent decline in soft goods sales over the same period a year ago. Several directors felt that inflation was causing consumers to be more cautious in their buying. On the other hand, buying in agricultural areas, reflecting high farm incomes, has been very strong.
Although automobile sales have been satisfactory for lower-priced cars, sales of the larger cars are weaker. Orders for both pickup and heavy trucks are heavy.
Housing construction continues to fall off. High interest rates and, in some areas, a shortage of mortgage finance have been a major element in the decline. This decline in residential construction has affected the lumber industry, and in the future it will affect suppliers of other builders' goods once current orders are worked off. Commercial construction, which has not fallen as yet, has risen only slightly. The cement industry already is feeling the reduction of new foundations being poured.
Lumber prices, which have declined, have strengthened somewhat as increased exports have helped offset the decline in domestic demand. Pulp and paper production continues at near-capacity levels.
Farmers in the district are benefiting from high prices and, in most cases, excellent crops. One serious problem is a shortage of freight cars, described by an Idaho director as the worst in a half century. Drought has cut wheat production in eastern Washington and Oregon, and this area is a major exception from the overall picture. Producers of potatoes in Washington and Idaho, and grapes and cotton in California, have had record prices for their production. Slightly lower prices are reported for beef, sheep, and cereal crops. High farm income has stimulated heavy buying of new equipment and has driven up land prices. One director thinks that speculation based on 1973 experience may lead to future overproduction and losses if caution is not exercised.
The general consensus of our directors is that some slowing of the economy is likely by the end of the year. Some think the slowing has begun, and although few think a recession may develop in 1974, most expect only a lower rate of growth. The major policy concern of our directors remains control of inflation. Stronger price controls and a more restrictive fiscal policy are advocated by some directors.
Commercial banks continue to face strong loan demand both by
businesses and consumers. Some banks are losing savings and time
deposits to various other market securities, but they have avoided
serious losses. Savings and loan associations, in contrast, are
continuing to lose funds, but apparently at a reduced rate. The
recent declines on short-term rates are interpreted by some district
bankers as reflecting an easing
of Federal Reserve policy, but
others think that most bank lending rates will only level off and
not decline until later in the fourth quarter.