October 23, 1985
Summary
Although some key sectors of the Twelfth District economy continue
to suffer, others remain strong enough to keep the region's economy
generally healthy. Problems remain in the forest products,
agriculture, electronics, and oil industries. In contrast, defense,
aerospace, trade, and services continue to grow. Interregional
differences in economic well-being within the Twelfth District
largely reflect variations in industry mix.
Consumer Spending
Retail sales figures from throughout the Twelfth District suggest
that consumer spending is healthy. Most stores show year-over-year
sales gains of 5-10 percent, though some are posting relatively
small sales decreases. Available figures indicate high credit card
sales volume, which likewise suggests that consumer spending remains
robust.
In most of the District, auto sales have been very strong. Oregon, however, posted a decline in August which more than offset July's sales increases. Many are concerned that sales will drop sharply when incentive financing stops.
Mining and Manufacturing
The oil industry slump continues to hurt oil producing regions in
the Twelfth District. In Southern California, the oil rig count is
21 percent below its year-ago level, production is down, fewer wells
are being drilled, and little money is being spent on oil
exploration. In Alaska, reduced oil revenues have led to sharp
cutbacks in state construction activity, which had been a major
source of employment.
Activity in the forest products industries remains stagnant. U.S. producers complain that their competitiveness is compromised by subsidized Canadian production, as well as cultural and legal restrictions on sales to Japan. Although some Oregon firms recently posted profits and are optimistic about the future, many others remain depressed. Further mill shutdowns are contemplated, and for the first time the paper market shows signs of weakness.
Disappointment is evident in regions that had counted on the semiconductor and electronics industries to lead employment growth. Additional layoffs, short work weeks, and salary cuts are announced frequently.
Defense and aerospace production continue to provide employment growth throughout the Twelfth District, with California and Washington benefiting most from these sectors.
Construction and Real Estate
The market for single-family housing appears healthy. Permits,
sales, and prices are all up in most markets, although increases
vary substantially with location. In Portland, however, permit
activity remained stagnant in August, while the median existing home
price was 4 percent below its July level and 6 percent below the
level of August 1984.
Multifamily and nonresidential construction exhibited greater variation. Continued commercial construction activity is exacerbating already saturated markets in the Los Angeles and Orange County areas, while vacancy rates appear to be falling in California's San Joaquin Valley. Multifamily residential construction is falling sharply in Utah and Arizona due to the past overbuilding that has increased vacancies in those markets. Previously torrid multifamily activity in the San Diego area appears to be slowing somewhat, while in Portland, multifamily permits rose substantially in August.
Agriculture
Agriculture remains weak. Growers of most western crops continue to
suffer from low prices induced by increased foreign competition and
bumper crops. Farmers report that tariffs and quotas on fruit
exports to Japan, and subsidies on European production, compromise
their ability to compete in the world market. The recent
depreciation of the dollar has had little effect as yet, and some
believe that more fundamental changes in production decisions will
be required even if the value of the dollar falls substantially.
Beef prices remain below the cost of production despite a recent
price increase. Other crops for which prices do not cover costs
include wheat, cotton, grapes, and potatoes.
Finance
Business loan demand in the West continues strong for smaller banks
but is weaker for large banks. Larger banks tend to serve larger
borrowers, which can raise money by selling commercial paper and
need not borrow from banks.
Demand for consumer credit continues strong and a bank study in Utah found that consumer debt relative to income is still only 77 percent of its 1977 peak. However, September delinquency rates on consumer loans and credit card purchases remain much higher than a year ago.
Mortgage rates remain essentially the same as last month, with some banks offering 30-year fixed rate mortgages at rates just above 12 percent. An Idaho bank reports that through the first eight months of 1985 its total new mortgage loan originations were 24 percent higher than the same period in 1984.