June 15, 1977
Consumer spending continues to expand in the Twelfth District. With a few exceptions, there is no unusual inventory accumulation taking place in the West. Demand for aluminum continues strong but Western agriculture continues to be squeezed between rising production costs and depressed output prices. Real estate prices maintain their rapid climb, especially in Southern California where housing prices have been rising in excess of one percent per month. Short term speculators appear to be playing a significant role in a few areas, and savings and loans are actively discouraging speculation through more restrictive terms for the purchase of houses which will not be owner occupied.
Consumer spending continues to expand. Oregon reports retail sales up 14 percent from last year with emphasis on big ticket items and airline tickets. Large auto sales are reported good in several areas.
There appears to be no unusual buildup of inventories in the 12th district, though some industries are cautiously bringing inventory back to "normal" levels. The aerospace industry is increasing inventories in line with production growth but reports no abnormal accumulation to hedge against inflation or shortages. A large electronics producer reports purchased inventories up 18 percent in May over April and work-in-progress inventory up 15 percent from the first of the year, but claims these are to support higher production levels. Auto dealers also report larger inventories to support brisker sales. A large Oregon clothing manufacturer describes inventory levels as comparable with a year ago.
There are only two instances of unusual inventory buildups. One is in activity dependent upon coal in anticipation of a coal strike. The second is in the wood and paper products industry, where log deck inventories are up in anticipation of summer forest closures due to fire danger and also because of depressed export markets.
The agricultural sector seems resigned to a less than good year. Production costs are up and prices flat in most areas. It is reported that farmers in central Washington will be lucky to break even this year. Though beef prices have improved somewhat, the industry is still generally depressed, and two major feed lots in California's Coachella Valley appear to be going under. At the other end of the food chain, the Retail Clerks Union is striking a number of retail food outlets in Washington.
The rapid increase in housing prices continues to be a major focus of attention in the West. The hottest markets appear to be the San Francisco Bay Area, and several countries in Southern California, although some parts of Utah, Washington and Oregon also report upturns in housing prices. During the 12 month period ending March 31, the prices of existing single family dwellings in the 7 county area around Los Angeles rose 27 percent. In particular, Los Angeles County homes in the $30,000 plus category a year ago, experienced a 41 percent increase over the year ending March 31.
District comments explain this price trend as the result of a surge of post-recession demand confronting a housing supply reduced by the preceding recession. Environmental restrictions have also been a factor in the situation, and in a few areas short-term speculation has pushed up prices. The influence of speculation is reported to be greatest in Southern California, with speculators accounting for an estimated 20 percent of some markets. One example of this demand is a lottery recently held by an Orange County (Calif.) developer for 85 low priced ($35,000) homes and 4,435 persons signed up. However, speculation is not really pervasive in the West; our Idaho correspondent reported very little in that state, for example.
There has been some concern that financial institutions were aiding speculation through the promotion of second mortgages, but our reports indicate otherwise. A number of banks do report that second mortgages are an increasing share of their portfolios. This share is still tiny. Almost none of this money is reportedly used for real estate speculation; most is used for home improvement. A possible exception to this pattern is a large California bank whose recent survey showed that of all second mortgage loans, 22 percent was used as down payments on real estate (half of which went for second homes in mountains, desert or on the ocean), 34 percent was used for debt reconsolidation and 34 percent for small business capital or additional investment. Savings and loans associations in Southern California have tried to deter speculation by requiring an extra 5 percent down, an extra 1/2 percent fee and an additional 1/4 percent on the interest rate for homes bought by non-occupants.