May 16, 1979
With few exceptions, the Western region has continued to enjoy strong economic growth during the first four months of the year. 'Bullish' consumers are definitely spending instead of saving. Retail sales continue very strong. Both national and regional chains are planning numerous new store additions this year—reflecting confidence in the region's further growth. Business demand for bank credit remains high. Retail inventories generally have been kept under control except in two categories—gas-guzzling large cars and recreational vehicles—which are the obvious victims of gasoline shortages. Demand for compact and subcompact autos continues to exceed supply. Residential construction is active in the Northwest, but the housing industry continues to slow elsewhere in the West. Commercial construction continues strong throughout the area. Sales remain strong for new and used business equipment. Employment is strong, unemployment low. Skilled workers are at a premium. The region's main concerns, according to several directors, are the gas shortage and inflation.
While California has suffered more than other Western states from inadequate fuel supplies, the entire 12th District may eventually be hurt. (However, the damage to date has been modest.) The shortage would first be felt in automobile, recreational vehicle and pleasure boat sales, in the retail trade, in the amusement park and hotel/motel business and in the planting, harvesting and delivery of agricultural products from the fields to the marketplace. In addition, the United Airlines strike is affecting the shipment of fresh produce. And railroad boxcar shortages are delaying deliveries of lumber. Concern over the energy situation will be an additional risk factor causing firms to be more cautious than usual when placing orders for the remainder of 1979. But to repeat, the volume of sales at both the wholesale and retail levels remains strong, despite signs of trouble on the horizon.
The gasoline shortage has proved to be a mixed blessing for the Pacific Northwest, where the Boeing Company is located. Boeing's aircraft sales are very strong as airlines order more fuel-efficient aircraft, such as the 757 and 767 models.
Meanwhile, inventories remain low except in the petrochemical industry, where producers have built up stocks largely as a security measure for meeting existing commitments for delivery.
Booming retail sales are particularly evident in California and the Pacific Northwest. Preliminary data for the first quarter shows California had a gain of about 20 percent over the first quarter of 1978, with gains of 15 percent for nondurable goods and 29 percent for durables. These gains are at least 50 percent larger than the national gains for the same period. Partial data for April covering a sample of large Southern California retailers show an 18 percent gain over the April 1978 sales volume. Only Utah and Idaho report first-quarter retail sales weaker than anticipated.
When quizzed about the impact of the 1978 tax cut on the spending/savings habits of Western consumers, most directors report that the tax cut generally did not offset higher social-security taxes and the inflation-induced boost of individuals into higher tax brackets. The rampant rise in inflation more than offset first-quarter wage increases for most workers—so purchasing power actually declined, giving individuals less to spend than last year. The situation for California property owners has been somewhat more favorable, due to the effect of lower property taxes as well as a reduction in state income taxes. And those who benefited by these tax cuts seem to be spending their newfound wealth rather than saving it.