December 5, 1984
Economic activity in the Twelfth District continues to slow from the vigorous levels earlier in the year, although many economic indicators remain above their levels of one year ago. Retail sales at major department stores remain healthy, but are at a flat or slightly slower pace than last month. Automobile sales have declined significantly since last month in certain parts of the region, but remain above 1983 levels. With the exception of California, most states in the District have experienced continued deterioration in residential building activity despite the moderation in mortgage rates. Non-residential construction activity, however, remains healthy. Increases in manufacturing employment have slowed and, in a few instances, unemployment rates are up from a month ago. The lumber and wood products industries in the Pacific Northwest remain particularly weak, with continued plant closures and activity levels in some products that remain below those in 1979. Weak foreign demand and large harvests has depressed significantly the prices for many agricultural products, threatening the income and solvency of western farms. Commercial loan demand remained cool but consumer loan demand appeared to be strong, leading some to anticipate strong holiday sales activity.
Consumer Spending
The rapid growth of retail sales experienced earlier in the year
clearly has ceased, but sales volumes are healthy and most retailers
are optimistic about the upcoming holiday buying season. The large
department stores in Southern California, for example, experienced
October sales volumes about 12 percent higher than a year earlier.
Good weather in Oregon is credited with stimulating particularly
strong retail sales and the Pacific Northwest generally reported
increased retail sales volumes over last year. In Alaska, an
actively promoted tourism program has provided stimulus to this
consumer service sector. Retailers report that consumers are value
conscious, but are attracted to large-ticket and luxury items, such
as home video equipment and high fashion clothing. Most retailers
anticipate strong holiday season sales but are following a cautious
inventory strategy. The sales of both new and used cars appear to
have slowed significantly throughout the District since last month
but generally are above the levels of a year ago. Confirmation of
the generally healthy state of consumer spending is provided by low
consumer loan delinquencies, and steady levels of credit card usage
and consumer borrowing.
Manufacturing and Mining
With a few exceptions, manufacturing activity in the District
remains healthy but with little evidence of rapid growth. The lumber
and wood products industries in the Pacific Northwest appear to be
the weakest in the District, with continued plant closures and
production levels for some products remaining below those of five
years ago. Hopes for this industry hinge on a recovery of home sales
and some relief from costly timber contracts provided by a recently
passed federal law. In Oregon, continued growth of the electronics
manufacturing industry offers hope of offsetting the declines in
wood products manufacturing. Plans for five new plants-offering two
thousand additional jobs by 1986 or 1987—were recently announced by
one U.S. and four foreign manufacturers. In California, recovery of
the economy has slowed but large inflows of capital from the Far
East and the strength of the aerospace and electronics industries in
the state still generate optimism. In Arizona, growth continues in
all nonagricultural sectors and in Tucson, Arizona, the unemployment
rate is extremely low at 4.2 percent. Mining activity in the
District remains sluggish as the result of strong foreign
competition, and lower metals prices. However, a new silver
discovery in Shoshone County in Idaho brightens prospects in that
one part of the region. The decline in world oil prices has had a
significant effect on western oil producers and states that rely on
severance income. In Alaska, for example, each dollar decline in the
price of a barrel of oil results in the loss of $150 million in
revenue to the state. A major railroad reports generally steady or
only slightly declining activity, confirming that despite the
variations within the District and between industrial sectors, the
economy of the District is in something of a holding pattern.
Construction and Real Estate
Construction and sales activity in residential real estate appear to
have slumped in recent months throughout the District. In Oregon,
residential building permits are running below 1983 levels and in
Washington, the home building industry is described as being
completely "stalled." In California, the pace of homebuilding
remains above that of 1983 and architects, contractors, and builders
report an encouraging increase in prospects for new projects. The
available home sales reports suggest a continued slowing despite
declines in long-term interest rates and generally easier mortgage
credit. The general weakness in demand is reflected by the modest
increases in home prices experienced in California this year to
date; prices generally have increased only at or even slightly below
general rate of inflation. Nonresidential construction remains
relatively stronger throughout the District and is extremely strong
in Arizona. However, in Southern California, there is concern about
oversupply of commercial real estate and that sector is experiencing
a weakening in activity. In Oregon, the new entry of five
electronics manufacturing firms and the expansion plans of several
others are expected to stimulate construction activity significantly
in the Portland region.
Agriculture
The agricultural sector throughout the Twelfth District is having
serious financial difficulties. These are brought about by a
combination of accumulated debt, weak export demand, and large
crops. In California, where the problems are particularly acute, the
values of Central Valley farmland have fallen 20-40 percent below
that of a year ago and thousands of acres are on the market unsold.
Observers anticipate that many farmers will be unable to survive
another year of similar conditions. Elsewhere in the region,
problems are similar but complicated by local factors. In Oregon,
for example, although crop yields have not been high, prices have
been low and farm incomes depressed. Additional problems have been
posed by a gypsy moth infestation in that state. Only the cattle,
berry, and potato crops in Oregon offer a promising outlook.
Similarly, although cotton crops in the District have not been
unusually large, the world price remains low and cotton farmers are
pressed seriously to repay previous debt. Only the intermountain
region appears to have weathered this year's harvest with relative
success; it is reported that farm cash receipts will increase in
that region this year.
Financial Institutions
Commercial banks in the Twelfth District experienced continued
growth in assets in the third quarter of the year—at a 7 percent
annual rate. Much of the increase was attributable to continued
strength in consumer lending, as commercial, industrial and mortgage
lending were generally flat during the third quarter. Funding
occurred primarily through large denomination CDs and other time
deposits. Money market deposit accounts and demand deposits in
general did not register large inflows.
A similar pattern of growth is observed in the savings and loan industry, although the financial problems of a large Association generated a large savings outflow for total deposits of the Eleventh Federal Home Loan Bank District in August and September. Mortgage loan commitments declined in September although total mortgage lending in 1984 to date exceeds the level achieved in 1983. There have been declines in profits for the savings and loan industry as a whole since 1983 as new lending increasingly has been financed by expensive. consumer time deposits.