Beige Book Report: San Francisco
December 1, 1987
Summary
The Twelfth District economy continues to exhibit steady growth,
with little apparent impact from the stock market decline of mid-October. Declines in the foreign exchange value of the dollar and in
interest rates during the past month appear to be more important
economic developments for many western businesses. Consumer spending
continues at about its previous pace, with the weakness in car sales
noted early in October carrying through to recent weeks.
Manufacturers, farmers, and forest products companies continue to
enjoy improved sales and exports, with changes in capital spending
plans among these firms extremely rare. Activity in construction and
real estate also seems to be holding up well, despite isolated
project postponements in the wake of the stock market decline. Some
financial institutions have seen increases in deposits since October
19, but few report changes in loan demand or significant problems
with equity-secured loans.
Consumer Spending
Consumer spending appears to be holding up well in the wake of the
stock market decline. Although several respondents noted an increase
in consumers' cautiousness, few cited specific examples of changes
that could be attributed to market events. Car sales are sluggish,
but they were slow in early October as well, and most observers
attribute the current pace of activity to the lifting of incentive
programs. Some deals fell through during the week of October 19, but
the impact appears to have dissipated. Sales of luxury cars,
however, reportedly remain sluggish. There are reports of sales
declines for some high-end apparel stores in Oregon and southern
California, but other high-end retailers report sales increases.
Manufacturing
Manufacturers in the Twelfth District continue to report
improvements in sales, many of which they attribute to the reduced
foreign exchange value of the dollar. No respondents reported any
changes in manufacturers' capital spending plans as a result of the
stock market decline. Many pointed out that their expansion plans
already were conservative, calling for only the most necessary
projects. This stability is reflected in borrowing activity; for
example, one large Washington bank reported that no business loan
requests have been withdrawn since the plunge. A California state
office that provides assistance to expanding and relocating firms
likewise has seen no changes in expansion plans. Several respondents
did note, however, that businesses are taking a "wait and see"
attitude regarding future commitments.
Agriculture and Resource Related Industries
For the most part, changes in interest rates and the value of the
dollar are affecting resource industries more than the stock market
decline is. Scarce rainfall has affected some farmers in the West,
and northwestern forests were closed to logging for a brief period
due to fire danger. Early fall rains alleviated much of the
immediate concern, but it will take average rainfall throughout the
winter season to assure normal water supplies for next summer.
Exports of agricultural and forest products continue to run at
levels well above those of a year ago, and only one firm in either
industry reported changing its capital spending plans since the
stock market decline.
Construction and Real Estate
The week of the stock market decline, some realtors reported that a
few deals fell through, primarily because buyers had invested their
down payment money in the stock market. Since then, however, home
sales activity has been comparable to that earlier in the year.
Construction activity also is holding up for the most part, although
one southern California developer postponed a residential real
estate development because of concerns about housing demand eighteen
months from now. The decline in interest rates is offsetting much of
the concern regarding the impact of the stock market decline on home
buying activity.
Financial Sector
Although a few financial institutions have noted large deposit
inflows during the past month, many others have seen little or no
change. Several institutions reported that they recently have become
more aggressive in attracting deposits, by offering more competitive
interest rates.
Most bankers report that they have seen no significant changes in loan demand since mid-October. One financial institution, with offices throughout the West, noted a decline in mortgage applications the week of October 19, but since then activity has been at levels comparable to those seen throughout 1987. However, a southern California institution reports that demand for residential real estate loans has dropped by about 10 percent in recent weeks. There was some initial concern about asset quality of stock-secured loan portfolios, but closer examination has revealed few significant problems.