February 12, 1975
In the opinion of our directors, there was a sharp deterioration in the economic climate in January, after employment and income in this region had held up relatively well through the end of 1974. Many of the directors still expect a pick-up toward the end of this year. The weakest sectors are housing, lumber and aerospace. The agricultural sector is still strong, and retail sales are holding up except for autos.
The directors feel that we are in for a period of belt-tightening and emphasis is being placed on controlling costs and productivity improvement programs. The consensus is that the recession will be short but sharp. Material shortages have practically disappeared and there is now fear of rapidly developing excess inventories. The rate of inflation is expected to decline to 6 percent by year-end because of excess supplies and low utilization rates.
In response to a question regarding the outlook for employment in their own industries, no director anticipated increases. In Utah, a very strong end 1974 showing was marred by the recent announcement of layoffs at Kneecap Copper Corporation. About 1,200 employees are involved and it has been estimated that each layoff would create a further 2 1/2 percent unemployed in secondary industry. The Boeing Company anticipates a decline of 1,500 employees, 2.5 percent of its work force, in the first half of 1975 as a result of delays and reductions in the level of commercial aircraft orders.
The agricultural sector, although generally strong, is beginning to develop cracks. High costs have depressed the cattle-feeding industry to the point where feed lots are being shut down and bankruptcies are being reported. Producers claim that along with the high feed costs they are suffering from political pressure and consumer activism. On the other hand, grains and most other crops continue to earn a good return and farmers are continuing efforts to expand acreage. One exception is cotton where growers are feeling the pinch of lower prices.
Our directors do not foresee any growth in nonresidential building activity over the next 6 months. They believe that passage of the investment tax credit would not translate to increased capital expenditures until year-end. The Seattle area, however, expects increased activity in the second half of 1975 due to such special factors as the Alaskan pipeline and the Trident Missile Base Development program. There appears to be some demand for small industrial buildings. This is being handled by a new type of financing in which developers are selling industrial condominiums. In the current financial climate, this enables the smaller businessman to put his financial package together.
Residential housing construction is still viewed as the disaster area of the current recession and its impact on the lumber industry in the Pacific Northwest is severe. Nevertheless, one director reports that his lumber firm anticipates "full production again within the next 6 months and heavy reemployment within the wood products industry as a whole."
Retail sales declines so far appear to be concentrated on durable goods. In Southern California retail sales of nondurables held up well until just after Christmas, but have slowed considerably in January. The rebates being offered on automobiles are helping the small car lines, but are not stimulating sales of medium-priced cars. Luxury automobile lines continue to sell well.
Among District states, the impact of the current recession is varied. With its prosperous agricultural sector, Idaho is faring better than the national average, and Utah is benefiting from strong demand for coal and fertilizer products. The strongest areas of California are those with an energy or agricultural base. The slowdown in general business activity is most apparent in the Pacific Northwest and Southern California, areas dependent on lumber, electronics and aerospace.