April 15, 1980
Signs of more cautious approaches to buying, borrowing, lending and future planning are beginning to appear in the Twelfth District's economy. In the face of slumping retail sales elsewhere, consumer buying has remained firm to brisk in much of the West, with strong buying reported in Southern California and in the urban areas of Utah, Idaho and the Pacific Northwest. Countering this is a depressed home-construction and real-estate sector which has crippled the lumber and plywood industry in the Northwest—triggering mill closures, production cutbacks and rising unemployment. Banking and financial institutions generally are adjusting well to tighter limits on loan expansion, while noting that many consumers are adopting self-imposed credit restraints. Rising financing costs are crimping future plans of farmers and cattlemen, but good late-winter weather (except in rain-deluged Southern California) provided ideal planting and range conditions this spring.
Retail sales in Southern California during February and March ran approximately 14-15 percent ahead of year-ago figures. In most other areas of the District, consumer buying fell below the annual rate of inflation, and further slowdowns are expected in coming months. Still, Southern California retailers noted some softness in sales of selected consumer durables, while Utah stores noted very good sales of big-ticket items such as electric ranges, dishwashers, dryers and home freezers. Meanwhile in Oregon, retail sales were labeled "disappointingly flat," and a major Oregon retailer restrained inventory accumulation and halted expansion plans.
"Domino" effects of an ailing construction industry are being seen in rising unemployment, falling heavy-equipment sales and rising bankruptcies.
But the District's diversified economy appears able to ward off a major recession. Bright spots in the area's business activity include: aircraft manufacturing and port business in the Puget Sound area, ski-resort business throughout the Mountain West, commercial and industrial construction in Southern California and the Pacific Northwest, and selected exports such as wood products, metals, and electronic components.
Following a nationwide pattern, reporting directors called residential construction "a wet blanket" in Southern California, a "disaster" in the Pacific Northwest, and "practically nil" in the Intermountain area of Utah and Idaho. Among the casualties were fast-food outlets, which cut back considerably on expansion plans in Southern California. The falloff in housing starts even reached Alaska, despite stimulus to home-buying from a state lending program for owner-occupants. Housing starts in Oregon fell to their lowest level since World War II, and analysts predicted a 40-to-60 percent decline in residential construction this year in Utah, Idaho, Oregon and Washington.
One third of Oregon's industrial base is concentrated in lumber and wood products, so the current downturn is placing heavy stresses on the state's economy. The American Plywood Association reports 18 plywood mills closed and 16 with curtailed production in Oregon at the end of March. Also, about one-third of Washington's plywood work force has been idled. Spokesmen for lumber trade associations maintain the current slump is at least as bad as that of 1974-75. In Idaho, recent layoffs of more than 400 workers by Boise Cascade and the Van Camp Packing Company have triggered a 29-percent unemployment rate in several small towns.
Reports are mixed from the region's agricultural sector. In California's Central Valley, the fruit crop was "extremely good" in the southern end around Bakersfield but only "average" around Fresno. The Florida freeze has pushed up the price of California citrus. As a result of wet weather in Southern California, prices are expected to be up on almonds, green onions, avocados and citrus fruits. In that area's Coachella Valley, the carrot crop was reported ruined, but cotton production was relatively unaffected and cotton prices remained high.
Higher energy and financing costs continue to plague agriculture in the Northwest. But decent weather and ground moisture during the spring planting season will aid production of hay, vegetable and seed crops in the area. In the Intermountain region, farmers withholding their wheat and corn from markets until they can obtain higher prices are experiencing storage problems.
Farmers throughout the District are suffering from financing problems. Noted one observer: "They are having difficulty living within the present cost of money, which is their principal operating cost." To overcome this problem, many farmers are scaling down their loan requests to a bare minimum, foregoing major equipment purchases and repairing worn and broken equipment to last another year or more. Despite rising farm costs, employment in California's farm-rich San Joaquin Valley increased 2 1/2 percent in January and February following a 2-percent overall rise during 1979.
In the banking and financial sector, loan demand appeared to be cooling in several areas. An Anchorage bank stopped issuing new credit cards, and reported a 16-percent decline in its consumer-loan portfolio over the past 18 months. The largest banking organization in the Mountain West announced that it is charging $20 a year for the use of its Visa credit card, with interest on those accounts starting to accumulate the day of purchase rather than 30 days after the billing date. "Consumers appear to be rationing themselves in the credit sector," said one Washington banker. Lack of loan business has forced some financial institutions in Southern California, Utah and Idaho to trim their staff and budgets.
In response to a Federal Reserve survey, bankers generally reported that total loan expansion at commercial banks this year could be limited to the 6-to-9 percent range recommended in the Fed's special credit-restraint guidelines. Several banks reported that real estate and installment loans have already been curtailed by high costs and, in some instances, usury law limits. To remain within the loan- increase guidelines, some lenders are curtailing non-productive loans for business expansion, speculative purposes and unsecured personal borrowing. One banker had this to say: "We expect the curtailment to be borrower-imposed across the board. Businessmen are borrowing less to carry inventories, contractors (other than home builders) are curtailing the amount of work they are taking on to avoid borrowing in the 20-percent plus range, and mortgage demand at current rates is virtually nil."