September 14, 1977
Retail sales continue strong in the west, with an emphasis on autos and appliances. Capital spending, on the other hand, continues generally weak, with a quite visible portion of this spending being used for pollution control. Residential construction remains strong, though the rate of increase has plateaued in most areas. Because of low grain prices and high drought-induced production costs, many Western farmers are experiencing serious cash-flow problems and rural economies are somewhat depressed. The much-noted forest fires of the west have been mainly confined to wilderness and park areas and are unlikely to have any noticeable impact on the timber supply.
Retail sales continue strong throughout the district. In Salt Lake City, sales of appliances and other big ticket items are matching the rapid pace of residential construction. The largest gains of the year are currently being experienced by Portland's largest department store. A northwestern distributor of foreign cars reported the best August since 1973, with sales up 42% from July. Several areas in both southern California and Idaho reported that retail sales continue to increase at 15 percent over 1976.
Capital spending still appears generally weak in the West. One Oregon bank reported that most of its commercial loans were for debt restructuring or acquisition of other companies. Another Oregon bank observed that much investment was for transportation items. An independent Idaho oil producer claims that his company is making no oil-related investments. Several industries noted that a significant portion of capital spending was for pollution control equipment. A large aluminum producer reported that it had been devoting some 25 to 35 percent of its new investment to pollution control and that this share was expected to remain constant over the next several years. A large forest products firm, which had also been directing about 25 to 35 percent of its capital budget to pollution control over the past five years, claimed to have reduced this share to roughly 10 to 12 percent. The aerospace industry, not being a noticeable polluter, is devoting practically all of its modest capital spending to such productivity-improving equipment as new computer technology and new machine tools.
Residential construction still continues strong in most Western cities, though the rate of increase has stopped moving up. Salt Lake City, for example, reports record-breaking levels of new housing starts but notes that the rate has apparently peaked. In Idaho, construction of single family homes continues 28 percent ahead of 1976 though this rate has been steady and not increasing. In California, construction continues above its long-term growth in demand but the rate of increase is falling. On the other hand, the peak has not yet arrived in the cities of the Pacific Northwest. Due to falling net farm income rural construction is slow, and one Washington reporter notes that most new rural units are mobile homes.
Western farmers are being squeezed between low grain prices on the one hand and higher unit costs (induced by drought) on the other. This results in serious cash-flow problems for farmers and thus a serious weakening in the rural economy, since farmers are buying very little. In Oregon, the winter wheat crop is reported to be down 27 percent from last year. One Oregon banker noted that virtually all retail and service firms in rural communities on the east side of the state have been adversely affected. Similar reports have arrived from the east side of Washington. In California, the estimate of drought-induced agricultural losses was recently reduced by 40 percent to only $800 million, about two-thirds of which are borne by the livestock industry. Still, the decline in net income and extreme uncertainty over water supplies for next year has seriously depressed sales of farm implements and equipment.
During the past month there has been much press coverage of forest fires plaguing the West in general and California in particular. While California's forests have suffered considerable fire damage, the impact upon the timber supply should be negligible. This is because most of the fires have been confined to wilderness and parklands unavailable for logging. Other western states report that fire damage is running about normal for this time of year.