November 2, 1983
The economic recovery in the Twelfth District is continuing with very strong growth in retail sales for a wide range of products in most areas. Employment growth was very strong, especially in California, where September employment increased by 2 percent (184,000) and the unemployment rate declined by a full percentage point over August levels even though the labor force grew by 77,000. This more than made up for California's August decline in employment. The deregulation of time deposits has had a modest but significant effect on these balances, particularly shorter-term deposits. However, the effect of deregulation on time deposits is expected to be much less than on MMDAs and super NOWs.
Consumer Spending
Respondents throughout the Twelfth District generally report that
consumer spending on a wide range of products continues to grow at a
very high rate with sharp increases in September. Sales appear to be
higher in most areas of the Twelfth District across a broad array of
consumer goods including home goods, soft goods, and autos. Auto
sales were mentioned by several respondents as being especially
strong with shortages of many Japanese models due to strong demand
and import restrictions. Employment in retail stores also was
increasing in some areas and retail loans and credit card sales were
up compared to last year. Respondents attribute increases in
spending to pent-up demand, declining unemployment and increasing
real income.
Manufacturing and Mining
Although total employment generally increased in the Twelfth
District, with especially strong growth in California, manufacturing
employment growth is weak and employment in mining has actually been
declining. In fact, the closure of a copper smelting operation in
Ely, Nevada has seriously depressed local economic conditions.
Manufacturing employment in the lumber-and-wood products industry
increased somewhat, although this industry is far from strong with
some plant closings still occurring. There was improvement in the
transportation equipment sector. Even though the domestic market is
weak, sales of aircraft on the foreign market has improved, boosting
production. The aluminum industry continues to improve, and several
companies are reopening smelters.
Construction and Real Estate
Housing starts in the West declined in September over the previous
month's level. Some respondents indicated that the inventory of new
housing also remained high due to the recent rise in mortgage rates.
Sales are reported to be much lower than in previous months.
However, commercial real estate sales and rental activity are
reported to be strong.
Agriculture
In general, California farming has held its own this year with net
farm income up slightly, although there have been problems due to
weather with some crops such as grapes, cotton and almonds. However,
losses due to weather damage may be partially offset by higher
prices. In Oregon, net farm income is expected to be down by as much
as 5% to 10% compared to last year. A bright spot appears to be
Idaho, where there are record wheat, barley, and almost record
levels of potato crops.
The PIK program was probably a major factor in increasing the incomes of grain, rice, and cotton producers. The PIK program along with the Midwestern drought, however, has probably had a negative influence on beef and dairy producers because of the resulting increase in feed grain prices.
A local Southern Idaho Production Credit Association (PCA) failed due to loan losses and was taken over by the Farm Credit Administration. There have been similar steps taken by the Farm Credit Administration at four other market associations during the past year. Some farmers are worried about the effects of these failures on 1984 crop financing.
Financial Institutions Summary
Competition for consumer-type deposits following the October 1
deregulation of small-denomination time deposits has been
considerably less intense than that following the introduction of
MMDAs and super NOWs. The incidence of bonuses and premium rates is
low. However, a number of institutions (savings and loan
associations, in particular) have lowered the minimum denomination
requirements on various time accounts.
Inflows to these accounts since the beginning of October have been modest in comparison with the surge in MMDA balances recorded in January. Nonetheless, the growth in these balances during the first few weeks of October has been significant, particularly in the shorter maturity range. This may reflect an increased desire to hold shorter-term deposits due to uncertainty regarding the future level of interest rates as well as the lowering of minimum denomination requirements. Shifts of funds out of MMDAs do not appear to be the source of this growth, as the growth in MMDA balances has also resumed after tapering off during the third quarter. While early growth figures are encouraging, most observers in the industry do not expect these newly deregulated accounts to generate substantial inflows of new funds.