March 15, 1978
Retail sales are reported strong in most parts of the District, though the coal strike in Utah and heavy rains in Southern California have weakened sales somewhat. The inventory picture is mixed with some excess inventories reported in Southern California due to rain-depressed sales and thin inventories in the Pacific Northwest due to slow shipments of goods from the Northeast. Western industry continues to grow, with aluminum and aerospace doing particularly well. While consumer and real estate loan demand remains strong, business loan demand is still flat.
While retail sales in Northern California appear to be running up to 12 percent above year-ago levels, sales in Southern California have been dampened by unusually heavy and frequent rains. Grocery stores in that area report sales to be both less than last year and less than planned. Retail sales of non-durables in the Los Angeles area are very slow due to bad weather, and year-to-year declines of 10 percent in weekly volumes are not unusual. However, in dry weeks sales activity shoots ahead. This start-stop pattern has made inventory management rather difficult and there are some reports of excess inventories.
In the Portland area, retail sales remain strong. One large chain reports January and February sales to be above year-ago levels by 16 and 12 percent respectively. One large department store complained that delays in the shipment of goods from the weather-ravaged Northeast were keeping its inventories a bit thinner than desired. While domestic auto sales in Oregon remain slow, sales of foreign autos is beginning to pick up. A large food distributor reports retail food sales in Seattle to be disappointing in January and February, and is rather puzzled by it.
In Idaho, a depressed farm sector has held back retail sales of both non-durables and autos. Several shopping centers in Utah report retail sales to be running about 8 percent above year-earlier levels and auto sales are also reported to be very strong. The coal strike does appear to be holding down retail sales in a few parts of the state.
The Western industrial picture is one of continued growth. Production in the aluminum industry continues to grow and the near- term outlook both in the West and nationally is excellent (assuming a quick end to the coal strike). Both the primary aluminum industry as well as many aluminum fabricating plants are reported to be operating at wall-to-wall full capacity. Boeing reports both a large backlog of aircraft production commitments as well as a very high rate of new orders. It is increasing its rate of production through a reduction in unused capacity, though it does anticipate some difficulty in finding an adequate number of technical, skilled production workers. The two largest employers in Utah, Kennecott Copper and United States Steel, report that production continues at a high level, though there is some concern about a prolonged coal strike. Oil drilling is very active in Utah and some very successful finds have been made in eastern Idaho and western Montana and Wyoming. Standard Oil of Indiana is putting a $5 million well in the middle of the Great Salt Lake.
A strong note of concern was expressed by a large builder that production costs in housing were rising at a rate of 2 percent per month and since these costs make up roughly half of the final price, that housing prices were rising at a minimum of 1 percent per month. It is becoming almost impossible to build moderately-priced housing.
Loan demand in the West appears to be stronger than in the nation as a whole. Since the beginning of the year, while lending by large banks fell off by 0.5 percent nationally, it rose by 1.5 percent in the West. Most of the western strength was in real estate and installment lending—business lending was virtually flat. The president of a large bank holding company expects this 6-week trend (of both the West outperforming the rest of the country and the flatness of business loan demand) to continue throughout the year. The president of another large bank reports loan demand to be strong in all areas except large corporate accounts. He also reported, with some concern, a 1 percent (seasonally adjusted) decline in personal savings between January and February.
One Southern California bank reports that while auto loans are down 1.5 percent, real estate loans are up 4.8 percent and master-charge loans up 11.5 percent, since January 1. While most areas report strong real estate and consumer loan demand, a few reports of weak consumer demand attribute this to slow auto sales. Loans to small and mid-size businesses appear to be growing modestly in some areas, but the only report of strong business loan demand comes from a bank in Alaska. Some concern was expressed in Idaho regarding a lower quality of loans due to the depressed agricultural situation.