January 28, 1986
Summary
The Twelfth District economy appears to be improving, although
problems in some sectors continue. In general, urban areas in the
West are more prosperous than are rural areas. The Christmas season
was a good one for most retailers. Low prices continue to trouble
many agricultural producers, although the recent drop in the value
of the dollar has already improved sales of almonds and winegrapes,
two of the District's most important cash crops. Electronics
activity is uneven, with a boom for defense related firms and
continuing troubles for non-defense firms. Forest products
industries, while still troubled, show some signs of improvement.
Overall, construction activity remains healthy, despite substantial
geographical variations. Lower interest rates are increasing the
volume of mortgage applications, but refinancing appears to account
for much of the increased activity.
Consumer Spending
Preliminary information suggests that most parts of the District had
strong Christmas selling seasons. In Oregon, Christmas sales were
disappointing, with volume 5 to 10 percent below last year's, but
for the year as a whole Oregon's retail sales grew 20 percent. Auto
sales in the fourth quarter appear to have been flat or down in most
areas. The reduced value of the dollar has had little impact on
imported car prices as yet, although an Oregon respondent reports
that sticker prices on Japanese cars have started to climb.
Agriculture
Soft prices continue to cause concern among many farmers and the
mood in most agricultural parts of the District remains gloomy. The
situation is brighter for producers of some specialty crops,
including some types of nuts, vegetables, and fruits. The reduced
value of the dollar has already provided a boost to almond sales
abroad and put a damper on wine imports to the U.S., which provides
appreciated good news to some California growers but little comfort
to farmers elsewhere in the District.
Manufacturing and Mining
Electronics industries continue to suffer in many parts of the
district. Despite recent much-publicized increases in semiconductor
orders, many semiconductor firms continue to announce layoffs and
either losses or sharply declining profits. In contrast, Seattle-
area firms, which produce primarily for defense purposes, appear to
be doing quite well. Snohomish County in Washington, for example, is
experiencing substantial growth in high-tech investment and
commensurate growth in its residential construction activity.
The forest products industries continue to suffer. The recent drop in the value of the dollar is unlikely to help forest products companies, because they compete primarily with Canada, whose dollar has remained stable vis-a-vis the U.S. dollar. Nevertheless, a recent survey of 60 Oregon forest products companies found that only three were unprofitable in 1985. Many of the profitable firms made only slim profits, however.
In Nevada, gold and silver mining activity is expanding. In 1985, 100 million ounces of gold were mined in Nevada, a 100 percent increase from 1984's total. Mining activity for other metals, such as copper, remains depressed.
Construction and Real Estate
Construction activity varies both among locations in the Twelfth
District and among different types of building. For the most part,
building is healthier in larger metropolitan areas than in the more
rural parts of Twelfth District states. One exception is the
agricultural Central Valley of California, where respondents report
that both residential and nonresidential building are healthy. Many
areas, particularly urban centers, report high vacancy rates and
oversupply in multifamily housing and in commercial space. In some
such areas, including Southern California, the boom continues
despite high vacancies and low absorption rates, but other regions,
including Salt Lake City, report declining activity in response to
oversupply.
Financial Sector
Interest rates on 30-year fixed rate mortgages have fallen in most
parts of the Twelfth District, and are now close to 11 percent in
some areas. Consequently, the number of mortgage loan applications
is up substantially in most parts of the District. It is not clear,
however, that the increase in applications reflects increased home
buying activity. Respondents invariably report heavy refinancing
activity, and some attribute the entire increase in applications to
refinancing rather than home purchases. Some respondents suggest
that home buying activity is being dampened by tightened lending
standards instituted in response to increased mortgage default
rates. With lower rates, variable rate instruments are used only
rarely in most areas, although one respondent reports that in
California, where variable-rate mortgages have been historically
more popular than elsewhere, over half of all mortgage commitments
are made through variable rate instruments.