November 12, 1980
The Twelfth District is still reporting signs of the continuing recession. Retail sales remain at depressed levels and no signs of growth are being anticipated. Interest rates continue to be a major source of anxiety in the region. It is feared that the rise in interest rates will have a number of adverse effects on the district. The brief recovery of the housing industry is expected to be completely stopped with mortgage rates at 14 1/2 percent and above. The lumber industry is experiencing a further reduction in demand and a number of firms are anticipating closures. Concern is also being expressed over the condition of financial institutions. With the higher interest rates and the approaching changes in the industry, lower profits are anticipated. Brighter notes are expressed over agricultural prospects and activities in oil and mineral exploration. Unemployment figures remain stable.
The volume of RETAIL SALES continues to be low and most areas are reporting little optimism for a quick recovery. Retailers are reporting sales well below last year's levels. Conservatism in new- order policies has kept inventories at low levels. Automobile sales appear to be picking up somewhat as the introduction of the 1981 line of cars has created some consumer interest. It is too early to tell if this interest is sufficient to change the fortunes of the automobile industry.
OIL AND MINERAL exploration continues to create discussion in some parts of the region. A waterflood project, costing $3 billion, is expected to increase oil recovery in Prudhoe Bay by more than 1 billion barrels when completed. It is reported that substantial petroleum deposits have been discovered in Beaufort Sea, next to Prudhoe Bay. The mining industries in Utah and Nevada are booming. Activity in the region has increased with the increased interest in synthetic fuels created by recently passed Congressional legislation. Changes in economic conditions of parts of the region, especially Alaska where oil revenues have allowed the State to cut and refund taxes, are being anticipated.
The AGRICULTURAL outlook at harvest time appears to be very good. Many areas are reporting large crops which will push down the prices faced by consumers. Despite the decline in prices, farmers are expecting good profit levels. Conditions for the lumber industry are reported to be bleak. With the rise in interest rates, demand for homebuilding material has come to a standstill and firms are anticipating a number of closures.
A general concern is being expressed about FINANCIAL INSTITUTIONS. An outflow of deposits has occurred with the rise in interest rates. Declining profits are being widely reported. Concern has also been expressed about the upcoming changes in banking. One respondent feared that the relaxation of rate requisitions and the enhancement of competition may increase unsound banking practices as banks attempt to attract business. Policies taken concerning NOW accounts might be able to give a good indication of future behavior.
MORTGAGE RATES in the Twelfth District are in the range of 14-1/2 percent. A few lenders are offering loans at lower rates but they tend to have stricter lending terms. Restrictions are placed on the maximum amount of the loan and loan fees are often higher at financial institutions charging lower rates. A number of savings and loan associations have stopped offering mortgage loans.
The HOUSING market continues to be weak. The rise in interest rates has inhibited both buyers and new construction. The housing market was said to be holding up in the past months because of mortgage loan applications that were submitted in periods when the interest rate was lower. A better indication of the effect of the rise in interest rates is the number of new loan applications submitted. This number has declined sharply and a decline in housing activity is anticipated. However, the decline is not expected to be as severe as the one which occurred last March.
UNEMPLOYMENT figures remain stable. The lumber and construction industries remain well below last year's employment levels. In some areas employment in housing related industries is down by as much as 50 percent. Some farm laborers have finished their seasonal jobs and an increase in unemployment is expected. There is some concern that there will not be enough jobs in the immediate years ahead to provide employment to those entering the job market.