December 6, 1983
In the Twelfth District the economic expansion is continuing, although growth in some areas such as the Northwest, especially Oregon, is lagging. Retail sales remain strong and orders are picking up in a number of capital goods industries. Many firms are rebuilding inventories that have been depleted by continued strong sales. However, businesses remain cautious about adding to inventories. Nonresidential construction is showing strength in some regions of the district. Commercial and industrial loans at large commercial banks expanded in early November after being noticeably weak since mid-year.
Consumer Spending
Consumer spending still is strong throughout most of the district.
The strength is apparent in retail sales and in new and used
automobile sales. Attempting to keep inventories lean, many
retailers and suppliers had run short of items as consumer spending
remained stronger than expected. The combination of depleted
inventories and anticipated strong Christmas sales has encouraged
many businesses to expand their inventories. Nevertheless, the
prevailing attitude toward building up inventories still has to be
described as cautious. Respondents indicated that the performance of
sales over the remainder of this year will be an important factor in
molding plans for inventory accumulation in 1984.
Manufacturing and Mining
A number of capital goods industries are experiencing a pickup in
orders. The most obvious strength is among firms involved in
manufacturing high-technology equipment and electronics. Orders for
airplanes are up, primarily due to purchases by foreign airlines.
Aluminum production is increasing. The lumber industry also is
showing some improvement, but this is mostly related to stronger
demand for paper and packaging materials. Mining in Utah, however,
is experiencing little if any improvement.
Some manufacturers reportedly are somewhat more hesitant than retailers to add to inventories. The reasons for this apparently are uncertainty about consumer spending in the future and high interest rates. Once again, firms are looking to continued strong sales through the rest of this year to confirm the durability of the economic expansion.
Respondents throughout the district suggest that at this point businesses are not planning sharp increases in real capital outlays. Businesses still are uncertain as to the sustainability of the recovery and are reluctant to make major commitments for plant expansion. The bulk of the capital spending that is planned appears to be targeted for new equipment and modernization rather than expansion.
Construction and Real Estate
Following the national pattern, residential construction generally
has slowed somewhat in the West. Nonresidential building activity
varies considerably from area to area. Reports indicate that such
construction is relatively strong in southern California as well as
the Central Valley of California. In Southern California, much of
the nonresidential construction is for companies in the electronics,
aerospace, telecommunication, and computer industries. The state of
Washington is seeing some rise in nonresidential construction, while
Oregon and Idaho are experiencing either flat or declining activity
in nonresidential construction.
Agriculture
There still is concern that the strength of the dollar is hampering
the agricultural sector. For example, the strong dollar is thought
to be preventing Asian parties from buying high-quality California
cotton. With regard to another development, the closing of the
Willamette Production Credit Association in Oregon reportedly has
adversely affected farmers in their efforts to obtain financing for
1984. One respondent thought that this could lead to "forced" sales
of some farmland in the area.
Financial Institutions
Business loans (NSA) at large commercial banks in the Twelfth
District expanded in early November. Prior to the recent growth,
business loans at large banks generally had contracted since about
mid-year, while at small banks these types of loans had expanded
relatively rapidly. Many of the respondents thought that the
difference in the behavior of business loans at large and small
banks observed until recently reflected the fact that the large
corporate customers, which tend to deal with the bigger banks, have
access to primary markets for funding. Some respondents indicated
that larger corporations had been using funds acquired earlier in
the year when bond and equity financing was more attractive. The
combination of direct access to primary markets, improved profits,
and lower inventories reduced the need for large corporations to
rely on bank loans. The recent growth in business loans at large
banks could be related to a buildup of inventories.
Depository institutions in California continue to actively advertise the deregulated deposit accounts. In general, interest rates offered on deregulated accounts do not appear to be inconsistent with other market rates, although rates on longer-term time deposit account tend to be higher in California than in the rest of the nation. In the Twelfth District, small-time deposits still are expanding, but have not shown signs of accelerating in early November.