January 29, 1980
The economy of the Twelfth District exhibits persistent strength with no reports of major declines in employment or production. The housing industry and automobile retailing activity continue to be extremely weak, however, and there is mounting evidence that this weakness is spreading to allied industries. Retail sales over the holiday were quite good, but many retailers are gloomy over the prospects for the first quarter of 1980. Loan demand has fallen off sharply in most parts of the District and most bankers anticipate continued declines in lending as the "pipeline" of commitments dries up. Harvests were generally good in the District and the prospects for the agricultural sector in 1980 are believed to be bright.
Residential construction activity has fallen off sharply throughout the district. In Utah, for example, residential construction permits declined approximately 20 percent in l979 compared to 1978. Similar reports were received from the states of Washington and Oregon. Home resales are also very weak. Homes in California, for example, are now staying on the market much longer although the housing market in the San Fernando Valley and Orange County areas of Southern California is still very active. There is no evidence of widespread softening of housing prices.
The weakness in the housing industry has begun to have repercussions in the lumber industry and other activities associated with housing. A regional lumber manufacturer in Oregon reports that production is off 20 to 25 percent. Closures of both plywood facilities and sawmills are also reported in Oregon, with the loss of about 1,000 more jobs than is usual for this time of year. Employment data for the state of California show an abnormal decline in November in the lumber and furniture industries although the absolute numbers involved are small. Prices of dimension lumber have dropped by about a third since early September. Non-residential construction activity is credited with temporarily cushioning the building supply industries from a more severe decline and some observers expect considerably worsened conditions in the coming months as non-residential construction falters.
Automobile retailers are reported to be in severe straits in some parts of the District. A survey of dealers in Salt Lake City resulted in remarks about sales such as "almost non-existent" and "worst in twenty years." In Seattle, however, dealers have accommodated high flooring costs by cutting inventories and sales are reported to be "fair." Sales of small and foreign cars continue to be stronger than sales of large domestic automobiles.
There are very few reports of weakness in the District's economy outside the housing and automobile sectors. Demand for aluminum products is so strong that a major producer is allocating the product to its customers. Recent rainfall in the Northwest has removed the threat of hydroelectric power cutbacks that would have hurt aluminum production. High world prices for lead, zinc, gold and copper have boosted the value of output from the Coeur d'Alene mining district in the Northwest. If current metals prices hold, the mining district's 1980 production is expected to be more than triple last year's figures. The Secretary of Interior announced last month that the intermountain power project will be located near Delta, Utah. Construction of this $4-6 billion plant is expected to further boost that area's economy.
The demand for skilled technical and clerical labor remains high throughout much of the Twelfth District. The unemployment rate of clerical labor in Southern California is estimated to be only 2 percent, for example. A major transportation company reports strong demand for its pipeline and rail services despite weakness in the forest products and automobile industries.
The large department stores in the District report a level of holiday sales ranging from "good" to "exceeding our budgets." A regional manager of Sears in Utah added that regional sales were better than those for Sears nationally. Sales of kitchenware and softgoods were stronger than sales of consumer durables. Most retailers are apprehensive about the prospects for the first quarter of the year and have maintained trim inventories.
Loan demand is generally weak throughout the District. However, a major bank headquartered in Southern California reports strong demand for commercial loans and loans for commercial and industrial construction. The weakness in demand for consumer loans, auto loans and mortgage loans is ascribed to consumer resistance to high interest rates. Several lenders in the District have dropped their rates but still have no significant loan volume. In those states without binding usury limits, funds are reported to be "generally available" at the prevailing interest rates. However, applicants in many parts of the District are having difficulty qualifying at present interest rates. A bank in Oregon reports that only one out of every four mortgage loan applicants is able to qualify for a loan. Delinquencies on consumer loans are reported to be on the rise, although they still remain at reasonable levels. Bankers in the District generally expect bankruptcies and foreclosures to increase in 1980. They also expect loan volumes to weaken further as previous commitments dry up.
The agricultural sector in the District is in good shape after the successful harvests of 1979. Banks in the central valley of California enjoyed strong deposit growth because of good harvests and there are no reports of anticipated farm credit problems. Inventories of farm equipment are high as a hedge against the increasing prices of this equipment. Farmers expect the markets for beef cattle, dairy cows and farm crops to be strong in 1980.