August 8, 1990
Summary
Economic conditions remain satisfactory in most parts of the West,
although western business leaders' expectations about national
growth continue to be subdued. Wage and price trends have not
changed appreciably during the past two months, with few sectors
reporting increases beyond 5 percent. Several service sectors are
experiencing strong growth, while retailers report generally
satisfactory conditions. Information about manufacturing industries
suggests that overall activity is flat, with strength in some
sectors offset by weakness in others. Conditions in resource
industries are little changed. Despite worrisome trends in aggregate
real estate and construction data for the West, markets in most
areas, particularly those away from the coast, exhibit robust
activity. The pace of activity at financial institutions varies
within the District.
Business Sentiment
Western business leaders' expectations continue to reflect caution
about national economic growth. Two-thirds expect slow real GNP
growth during the next twelve months, while 4 percent now expect a
national recession. Respondents are relatively upbeat about the
prospects for improvement in the trade balance, but expectations
regarding consumer spending and business investment have
deteriorated somewhat during the last two months.
Wages and Prices
War and price trends have not changed appreciably during the past
two months. Current increases cluster in the 4 to 5 percent range,
with few larger rises reported. However, some service-sector firms
continue to face a shortage of entry-level workers, which is putting
significant upward pressure on their pay scales. Some employers note
that, while wages are rising by less than 5 percent, the cost of
benefits rose 8 to 15 percent during the last year. An electronic
equipment maker reports stable prices despite heavy pressure on
profit margins. Prices of several resource products, including
wheat, corn, and some forest products, have fallen in recent months.
Retail Trade and Services
The trade and service sectors continue to be major contributors to
economic growth in the West. Strength as reported across a broad
range of service sectors, with particularly robust activity in
health care, business services, and software. For example, one large
software company plans to add 1,000 workers during the next year.
The economies of Phoenix and Tucson are benefiting from recent or
planned support facilities for national communications, credit card,
and airline firms.
Most retailers report satisfactory conditions, although for many growth is somewhat slower than in recent years. However, one major retailer notes that sales have showed significantly during the last two weeks. Auto dealers report that new vehicle sales are soft, while used cars and trucks continue to sell well.
Newspaper advertising volume is mixed. Reports from southern California indicate that help-wanted advertising is running below last year's levels, while a Seattle-area paper reports that employment advertising rose by more than 10 percent during the past year.
Manufacturing
Reports about manufacturing industries suggest that overall activity
is flat, with strength in some sectors offset by weakness in others.
Growth is reported in the Puget Sound ship-building industry, and
sales of heavy equipment have risen sharply during the past year in
most parts of the West. Some respondents report that delivery times
for their supplies have fallen significantly, which they attribute
to a combination of increased production and weak demand in other
parts of the country. Several defense contractors with operations in
the West have announced layoffs or plant closures in recent weeks.
Order backlogs for commercial aircraft continue to grow, but the
region's largest manufacturers are cutting their work forces to cut
costs or enhance productivity.
Agriculture and Resource-Related Industries
Conditions in resource industries are little changed. Farm
conditions are good overall, although low water supplies continue to
cause concern in many parts of the region. The salmon run in Bristol
Bay (Alaska) was twice as large as was expected. The long-
anticipated deterioration in logging and lumber is becoming more
apparent in the Northwest, as reduced home-building activity at the
national level reduces demand and environmental concerns restrict
supply.
Construction and Real Estate
Information about overall conditions in western construction and
real estate markets suggests significant deterioration during the
past year. However, such aggregate statistics are dominated by
cooling in coastal California from the boom levels seen a year ago,
and by changes in the geographical composition of real estate
activity. In most other parts of the West, home sales are robust and
prices are rising, in some cases significantly. Las Vegas and
Sacramento are particularly vigorous at present, with parts of
Oregon, eastern Washington, Idaho, and Utah close behind. Arizona
markets continue to be troubled, as absorption of current
inventories proceeds slowly. Some respondents from California,
Washington, and Arizona complain that tighter credit is restricting
construction activity in those markets.
Financial Sector
Activity at financial institutions varies within the District. For
example, some lenders report slack loan demand, others report slower
growth in loan demand, and still others report accelerating growth.
Most bankers report that delinquencies are down or low. A few small
businesses complain that tighter credit conditions are hurting their
ability to do business. However, bankers themselves disagree about
the extent of the tightening and its impact on lending activity.