August 5, 1986
Summary
The Twelfth District economy is growing modestly, as growth in the
residential construction, trade, and service sectors continues to
outweigh weakness in other sectors. Retail sales growth appears to
have slowed somewhat, and now is either flat or growing modestly in
most areas, Manufacturing activity remains slow. The lumber and
high-tech industries appear to be emerging from their respective
slumps, but more slowly than expected, Oil industry problems
continue to mount. Agriculture continues its downward slide.
Residential construction activity remains strong, as single family
home building accelerates while multifamily building slows. Many
lenders, overwhelmed by the volume of loan applications for mortgage
refinancing received during the spring, have altered their
application procedures for these loans.
Consumer Spending
Retail sales activity has been mixed. Respondents in coastal
California and Washington report modest annual growth of 3 to 5
percent. However, total sales are flat or only slightly higher than
last year's in Utah, Oregon, Arizona, central California, and
Alaska.
Available information continues to suggest that, as expected, tourist related industries in the West will post strong gains this summer. Oregon tourist traffic was 12 percent higher in May than it was in May 1985. Reports from Alaska suggest that a record number of visitors will see that state this summer, providing a welcome boost to the oil-dependent economy there.
Manufacturing and Mining
The aerospace industry remains strong, buoyed by commercial aircraft
sales and as yet unreduced defense contracts, but expected
improvements in most manufacturing sectors have not yet
materialized. Although greater demand for lumber and wood products
has increased western lumber production by 8 to 10 percent during
the past year, prices have dipped during the past few months.
Consequently, firms continue to cut costs by reducing wages and
modernizing plants. The condition of western high technology
companies is no longer deteriorating, but the long-awaited upturn
has not yet arrived.
Low oil prices continue to take their toll on oil producing areas in the Twelfth District. One respondent reports that in Kern County, California, only 30 percent of oil rigs are operating. In Alaska, one major oil company laid off 100 additional employees last month. Reduced state oil revenues have already led to a 15 percent wage cut for Alaska's state workers, and layoffs or further wage cuts may follow.
Agriculture
In most parts of the Twelfth District, low agricultural prices
continue to hamper farm profitability. In Idaho, where low milk and
potato prices have been particularly problematic, one sign of
weakness is that seasonal growth in agriculture loans is only one
sixth of last year's pace. In Oregon, yields of major crops
including wheat, rye, and grass seed are expected to be high, but
prices remain low. For a few crops, including grapes, apples, and
berries, prices are adequate and the outlook is more promising.
Construction and Real Estate
In most parts of the District, residential construction activity is
strong, although most areas that experienced a strong burst of
activity this spring have reported some slackening during the past
two months. Most respondents report that single family building is
outpacing multifamily building by a wide margin. There is however
wide variation among localities. In Arizona and Utah, single family
permits are running 20 to 30 percent ahead of last year's level,
while multifamily permits are down 20 to 50 percent. In Oregon,
single family permits are some 5 to 10 percent higher than they were
last year, but multifamily permits have fallen by a similar amount.
The San Francisco and Los Angeles areas however report single family
building up 10 to 15 percent, but multifamily construction up by 40
to 60 percent. In these areas, strength in multifamily permits is
attributed to the effects of mortgage revenue bonds and tax reform,
and most respondents expect building activity to slow soon.
Financial Sector
In the wake of last spring's home buying spree, residential loan
demand remains strong, and has even increased in Los Angeles during
the past few months. Banks have been deluged by refinancing
applications and approval time has risen dramatically. Most banks
have hired additional staff and streamlined application procedures,
but the most severe bottlenecks arise in appraisals and credit
reports which are outside the banks' direct control. Banks are faced
with falling rates and increasing time between application and
approval. In addition, some consumers "shop around" their
applications, multiplying bank workloads. As a result, most banks
have shortened commitment periods and few still offer rate lock-ins
upon application. In addition, many now require a nonrefundable
"sincerity deposit," paid upon application, that is applied to
processing fees if the loan is closed. Although no banks reported
increasing mortgage contract rates to reduce loan demand, a few have
increased origination fees.