March 25, 1981
Expectations for economic activity are gloomy in the Twelfth District. Activity in the region continues to be sluggish. Firms are being very conservative about their spending plans. Most feel that the economy is in a very vulnerable position. Although automobile sales have picked up in response to the rebate programs, concern is being expressed over the automobile industry. Housing activity continues flat because of high mortgage rates. Lack of rainfall and the fruit fly problem are major concerns to agricultural interests. Savings and Loan Associations are worried about their financial conditions and are anticipating merger activity.
Industrial
Industrial activity continues flat in the Twelfth District. Most
firms appear to be taking a conservative attitude with regard to capital
expenditures. Inventories are being maintained at minimum levels with no
apparent plans for increases in the near future. Some indicate that the
economy appears to be in a very vulnerable position and are curtailing activity. High interest rates and energy costs are thought to be especially
worrisome problems.
Housing
The housing market continues to be depressed. With mortgage rates
in the 14-1/2 to 16 percent range, most people are either unwilling or unable
to obtain mortgage loans. Conventional financing is almost non-existent.
Despite the fact that some interest rates are dropping, mortgage rates are
still rising in some areas. Little activity in residential housing is
anticipated until mortgage rates drop below 13 percent. The slowing of
residential real estate activity has apparently weakened the upward trend in
housing prices. One respondent knowledgeable of the field reported that
the national increase in housing starts is vastly misleading. It was
indicated that after taking into account the distortion in housing starts
because of the mild winter, it appears that activity is weakening and that
the industry is at a virtual standstill in many areas.
Automobile
Automobile sales have responded favorably to the rebate program
being offered by the major U.S. automobile manufacturers. However, expectations for the automobile industry are gloomy. It is feared that the
rebate program only changes the inter-temporal purchasing behavior of car
buyers. The increased sales presently occurring will be offset by reduced
sales in the coming months.
Agriculture
The general lack of rainfall in the region may create problems for
some agriculture areas. However, most areas are reporting that no hardships
are likely because of adequate reserves. The Mediterranean fruit fly problem
in California has created a great deal of concern both within the state and
nationwide. Currently the problem is isolated in one area but catastrophic
consequences could occur if the fruit flies spread. Efforts are being taken
to prevent the fly from spreading to some of the major agricultural areas of
California. Texas is concerned over the fly moving interstate and placed a
quarantine on all California fruit, much to the dismay of Californian
agricultural interests.
Retail
Retail sales remain sluggish. The surge in sales that took place in
December has not continued into 1981. Sales of durable goods have been especially slow. Some note an increase in the use of credit cards. But, they also
note that collection problems appear to be on the rise.
Unemployment
Unemployment continues to edge lower in most areas. Employment in
high technology industries continues to be growing. However, employment in
interest-sensitive industries remains depressed with almost no signs of
rebounding. Employment in the lumber industry is off as much as 200 percent
in some areas.
Financial insititutions
Now accounts continue to be the major topic of interest involving
financial institutions. The popularity of NOW accounts varies greatly
between areas and institutions. Some banks are reporting as little as 10
percent of personal demand deposits to be NOW accounts while others are
reporting as much as 50 per cent. An outflow of deposits to money market
mutual funds is reported by some respondents. A "leveling of the playing
field" is being called for. Savings and Loan Associations are worried about
the financial situation of their industry. A large number of mergers are
being anticipated in hopes of creating more stable financial institutions.