March 12, 1985
Introduction
The economy of the Twelfth District appears to be continuing its
recent pattern of modest, but steady growth. Employment gains were
registered in most states in the district, but growth in the labor
force caused a slight increase in measured unemployment rates. The
aerospace industries continued to provide momentum to the economy,
but there has been a slowing of activity in semi-conductor
manufacturing. Consumer spending generally remains strong, reflected
in steady retail sales growth. Construction activity is strong, but
has failed to revive fully the region's wood products industry.
Agriculture and mining are the two weakest sectors in the economy of
the Twelfth District. With the exception of deterioration in quality
of agricultural loans, the financial sector displayed no major signs
of weakness.
Consumer Spending
Growth in retail sales has been strong throughout the district. In
Idaho, for example, retail sales have grown 12 percent in the past
six months. In Utah, the figure for the same period is nearly 20
percent. Sales growth also has been strong in California, Oregon,
and Washington. Reports of automobile sales activity are mixed, with
a 23 percent year-over-year growth in sales in Idaho, but a decline
of 3 percent over last year reported in Oregon, for example. Car
dealers are reported to be building inventories, however, in
anticipation of renewed post-holiday sales activity. The continued
strength of consumer spending has buoyed employment in the services
and trade sector of the Twelfth District economy.
Construction and Real Estate
Construction and real estate sales activity generally has been
strong. Commercial construction is proceeding at a particularly fast
pace in southern California and Utah. Although permits for new
construction of single family homes in Oregon are off 3 percent from
a year ago, permits for multi-family construction are up almost 500
percent. Sales of existing homes also have displayed strength in
most parts of the district, up 33 percent in the last month in
Portland, Oregon, for example. However, construction activity in the
region has failed thus far, to revive the forest products industry
of the Pacific Northwest. At least 8 more paper plants are closing,
for example, plants, representing the loss of about 8,000 jobs. The
strong dollar and the consequent strength of competition from
Canadian imports is a major reason for the continued weakness of the
industry.
Manufacturing and Mining
The manufacturing sector generally remains healthy throughout the
district. Aerospace-related activities are an important source of
strength, particularly in southern California and the Pacific
Northwest, but also in Utah. Indeed, overal1 employment in the
District is growing, although unemployment increased in most states
in the District slightly between December and January due to rapid
growth in the size of the labor force. The picture in the
electronics industry is somewhat mixed; major new plants are under
construction in Oregon, but Silicon Valley chip manufacturers report
slow sales and there have been minor layoffs of production workers.
The mining industry continues to be depressed by low world prices for metals and minerals. The situation in the state of Nevada is reported to be the worst in 40 years. In Alaska, the recent declines in world prices have reduced state oil revenues by several hundred million dollars. In both Nevada and Alaska, however, activity in other sectors—particularly services and trade—have helped to maintain the general health of their economies.
Agriculture
The agricultural sector in the Twelfth District is in a seriously
depressed condition. In the Pacific Northwest, the eastern wheat-
growing regions have been affected most seriously by the strength of
the dollar and the weakness of export markets. In California,
raisin, grape and cotton crops have been most affected but the
weakness is quite widespread. Unemployment rates in the eight
counties of California's central valley range between 10 and 15
percent. Agricultural land prices, home sales, and automobile sales
are all depressed, reflecting the generalized impact of
deteriorating net farm income on the rural economy. In the central
valley, for example, automobile sales are 20 percent lower than a
year ago. California's farm exports in 1984 may be as much as 1
billion dollars lower than the year before. The value of farmland—particularly that in vineyards and other permanent plantings have
ceased to grow and are either flat or declining.
Financial Sector
Both commercial and consumer loan growth generally were healthy in
January in the Twelfth District, although slight increases in home
mortgage and consumer loans were reported. In Utah, for example,
installment loan delinquency was 2.4 percent at a major bank
compared with 2.3 percent in December. However, this was down from
2.7 percent a year ago. Savings inflows at thrift institutions also
were healthy as was deposit growth at commercial banks. The
deteriorating condition in the district's agricultural economy is
reflected in a high rate of nonperformance of agricultural loans at
commercial banks. In California, agricultural loans represent only
about 5 percent of total loans at commercial banks but the
proportion of nonperforming loans is reported to be nearly twice
that of a banking industry nationwide. In addition, smaller banks in
rural California, Oregon, and Washington have much less diversified
portfolios.