October 31, 1990
Economic growth in the Twelfth District continues, although the pace of growth has slowed further in recent months. Western business leaders are pessimistic about the prospects for national economic growth during the next year. Prices for petroleum-related products have increased sharply, but price increases for other products remain clustered near five percent. Retail sales are growing more slowly than previously, or are declining, in most parts of the District. Manufacturing activity continues to be muted. Agricultural conditions remain solid, and some energy-related industries are benefiting front higher oil prices. Real estate markets continue to cool in many parts of the District. Financial institutions report mixed conditions.
Business Sentiment
Western business leaders' projections of future economic activity
continue to deteriorate. Sixty-seven percent now expect a national
recession in the coming year, while the remaining 33 percent foresee
only slow GNP growth. Most respondents describe current inventory
levels as acceptable, but many note that efforts are currently under
way to reduce inventory levels as concerns about the economy's
future grow.
Wages and Prices
Prices of petroleum, transportation, and products derived from
petroleum have increased sharply, but price trends for most other
goods remain relatively stable. One respondent reports that the
large increase in crude oil prices has caused the addition of a
"fuel surcharge" to shipment costs. Price increases for many non-
fuel items are moderated by softening consumer and business demand.
Most respondents report overall price increases of about 5 percent
from last year.
Wage increases remain moderate, at about 4 to 5 percent compared with last year. In Washington, however, the continued boom in commercial aerospace has pushed up wages in the transportation equipment industry nearly 10 percent from a year ago.
Retail Trade and Services
Most respondents report that retail sales have recently grown more
slowly or declined. Retailers attribute the sluggish sales to badly
shaken consumer confidence. One auto dealer in the inter-mountain
area reports that while showroom traffic remains high, customers are
hesitant to purchase. A retailer in Southern California indicates
that September was the weakest sales month in several years. General
merchandise retailers expect this weak demand to continue into the
holiday season, and report an increased effort to reduce inventories
now to avoid heavy discounting in the coming months. In contrast,
sales are reported to be strong in parts of the Northwest inter-
mountain states, and Hawaii. In Honolulu, one shopping center
reported that August sales were 16 percent above their year-earlier
level.
In the Seattle area, both law and accounting firms reported a flat August and September. Growth in tourism continues to fuel Hawaii's economy. In August the number of visitors was up 7.8 percent from a year earlier.
Manufacturing
Western manufacturing activity remains mixed. In the Northwest, the
boom in commercial aircraft activity continues, with record orders
and backlogs, and hardly any slippage from the oil shock. However,
productivity increases are preventing even this strong sector from
experiencing significant employment gains. Total manufacturing
employment District-wide is declining, with a majority of
California's job losses in defense-related industries.
While most manufacturers' inventories are reported to be satisfactory, an electronics manufacturer and a maker of heavy equipment report that their inventories are higher than desired. The heavy equipment company faces significant layoffs as a result.
Agriculture and Resource-Related Industries
District agriculture remains strong. Prices for most crops are high,
with the exception of California pistachios and almonds, which are
in over-supply. Livestock prices continue high.
The slowdown in housing construction nationwide has combined with stockpiling of logs, due to federal timber supply restrictions, to increase inventories of both logs and lumber. As a result, some lumber and plywood plants in the Northwest are laying off workers.
One respondent notes that spending plans for oil and gas exploration and production are up 25 percent. In California, however, new oil exploration is on hold because of the volatility of oil prices and the shortage of skilled oil field workers.
Construction and Real Estate
Real estate and construction activity are slowing throughout the
District. Both home sales and median prices continue to decline from
year-earlier levels in California. Even the previously robust
Sacramento market appears to have cooled in the past two months.
Slowing activity in the Seattle area is now showing up in the data,
as prices and sales have leveled off. In Idaho, construction is
reportedly slowing in the Sun Valley area and new commercial
development loans are becoming more difficult to get.
Financial Sector
District financial institutions report mixed conditions. In
California, loan demand is reported so be growing more slowly or
declining in many credit categories, although some Central Valley
banks note increasing deposit growth and "good" loan demand.
Institutions in the Pacific Northwest and in Hawaii report continued
strong conditions. Banks throughout the District continue to be very
cautious in their lending practices, particularly with respect to
land and land development loans.