September 13, 1978
Some of the wind appears to have been taken out of the western economic boom. Retail sales are growing at a hair above the rate of inflation. There is no apparent slowdown in plant and equipment spending. There appears to be a slight weakening in the real estate market and associated construction industry, and this may be reflected in a softening in mortgage interest rates in a few areas. There are also indications that western consumers are beginning to spend less and save more.
Retail sales in the district appear to be increasing right at, or just a notch above, the rate of inflation. Domestic auto sales continue strong but foreign car dealers complain that their sales are down due to the declining dollar. In southern California, Cadillacs and other luxury cars are selling as fast as dealers can get them. Some softening of sales is reported for hard goods, furniture and adult clothing. Several directors felt that some current retail sales, especially those of foreign goods, are in anticipation of increased inflation and a further decline in the dollar.
Twelfth District Directors tend to feel that the decline in new factory orders observed nationally is not reflected in the western economy. Boeing's growth continues in Seattle. A large manufacturer of chain saws and power tools plans continued expansion of plant and equipment. A large food distributor in the Pacific Northwest plans expansion of both its retail and wholesale distribution centers and will complete construction of its first restaurant within 60 days. Agricultural reports from all over the region note good crops, stable prices and incomes considerably better than last year's. Even pulp manufacturing is picking up after two years of heavy inventories.
Reports on residential construction and housing sales are somewhat mixed, but the general trend appears to be toward a weaker market. Southern California, where the housing market had been the most feverish, now exhibits the most visible signs of softness. Homes which used to sell in less than a month now stay on the market two to three times as long. Houses priced above $100,000 are taking even longer to sell and sellers are settling for prices even less than the 5 to 10 percent below asking price observed for less expensive homes. Residential construction permits in the 5-county area of southern California are being requested at a slower pace, partly due to a pre-July bulge in permits as people scrambled to avoid the implementation of energy conservation requirements. Reports from the rest of the district indicate that demand is still strong, but that it does take a bit longer to sell houses and there is a modest decline in both permits and starts in some areas.
The District savings picture is somewhat mixed. The majority of reports indicate that consumer loan demand remains strong while consumer savings remain weak. However, one California and one Oregon bank are beginning to notice a reversal. The Oregon bank noted that consumer time deposit inflow rose back to normal levels in June and set a record gain for July. The California bank did not notice any real growth in savings until August. The experience of these two banks could signify the beginning of a district trend.
The mortgage picture is also mixed, since while most areas are still experiencing high and stable mortgage rates of about 10 percent, a few areas have noticed a 1/8 to 1/4 of a percent softening. An Oregon banker explains his rate reduction as being due to a seasonal weakening in demand. Reports from southern California are mixed since some bankers claim there is a weakening of demand while another claims that the new money market certificates have worked so well for S&Ls that they no longer need to ration mortgage funds as strictly as before.