Beige Book Report: San Francisco
December 4, 1991
Summary
Economic activity remains slow in most parts of the Twelfth
District, and the economic expectations of District business leaders
deteriorated further in November. Continued sluggish sales have kept
most wage and price increases modest, and concern about the holiday
shopping is widespread. Weakness in District manufacturing activity
continues. Agricultural conditions remain satisfactory overall,
despise several problems including the recent whitefly invasion.
Construction and real estate activity remains slow in most parts of
the District. With the exception of mortgage refinancing, lending is
still weak in most parts of the District.
Business Sentiment
The economic expectations of business leaders in the Twelfth
District deteriorated in November. Eighty-nine percent of business
leaders now foresee GNP growth of less than 2.5 percent during the
next four quarters, with 25 percent expecting recession. The share
of business leaders expecting recession has increased from 7 percent
in September and 17 percent in October. The majority of western
business leaders now foresee weaker business investment and
increasing unemployment during the next four quarters. Expectations
of consumer spending also have worsened, with 31 percent of business
leaders now projecting improved spending, down from 50 percent in
September and 37 percent in October.
Wages and Prices
Wages and prices are reported stable or increasing only modestly in
most parts of the District. Continued sluggish consumer demand is
keeping downward pressure on soft goods prices. Prices of many food
products are reported below year earlier levels, but the whitefly
infestation has led to higher prices for several winter crops,
including lettuce, broccoli, and cauliflower. Consumer prices in
southern California in October were up 3 percent from a year ago.
Wage increases for District firms duster in the 3 to 4 1/2 percent
range, with several firms reporting that wage increases will be
lower in l992 than they were in l991. Benefits costs continue to
rise faster than wages, led by increases in health care plan
premiums of 10 to 25 percent.
Retail Trade and Services
Consumer spending in the District remains sluggish. Department store
retailers report continued slow sales. Concern about the holiday
shopping season is widespread, although some western retailers feel
that the worst is behind them. New-car sales also are reported weak,
with little enthusiasm for 1992 models. In contrast, used car sales
continue strong, and prices are holding up well. Most retailers
report tightly controlled inventories, but a few firms note that
sluggish sales have caused some recent increases in inventories.
Slow economic activity also is reported at law firms, newspapers,
state and local governments, and research and development
laboratories.
Manufacturing
Weakness in District manufacturing activity continues. Layoffs and
cutbacks continue at some Oregon high-tech and metals manufacturers.
Aluminum manufacturers continue to face low prices and over-
capacity. Despite reports of high aluminum inventories, one
manufacturer reports that his inventories are "manageable" At
Boeing, commercial aircraft production continues strong, but the
pace of new orders has slowed considerably from last year.
Previously announced layoffs at Boeing in response to Stealth Bomber
cutbacks probably will be avoided.
Agriculture and Resource-Related Industries
District agricultural conditions are generally satisfactory. In
Washington, apple production fell 5 percent from last year, but
prices currently are up 20 percent from a year ago. Prices for
potatoes and soybeans are down from a year ago, but wheat prices
have strengthened recently in response to the extension of rain
credits to Russia. However, beef and dairy prices and demand remain
low. In addition, the whitefly infestation in southern California is
taking a toll on farmers already hurting from last winter's freeze
and the ongoing drought. The poinsettia whitefly has destroyed a
large part of the winter vegetable crop, pushing up prices for
vegetables such as lettuce, broccoli, and cauliflower.
Conditions in other resource industries are mixed. Sawmills and plywood plants continue to close in Oregon, reflecting the persistent weakness in the lumber industry. Orders for some pulp and paper products remain relatively strong, however. Oil and gas drilling activity in the District is still depressed.
Construction and Real Estate
Construction and real estate markets remain slow in most parts of
the District. In southern California, both residential and
commercial activity is weak. House values and home sales are down in
Silicon Valley, with particular weakness reported at the upper end
of the marks. Home prices in Washington are reported flat to down
slightly, while the volume of sales is rising slowly after dropping
off earlier this year. Housing starts in Washington are down 25
percent from last year. Commercial construction in San Francisco
remains flat. Several respondents cite tight credit conditions as a
reason for the slow construction activity.
Financial Institutions
Conditions at District financial institutions remain mixed. Banks
report relatively healthy conditions in Idaho and Utah and, to a
lesser extent, in the Pacific Northwest. Demand for home loans in
Utah is strong and delinquency rues have fallen to their lowest
levels in years. Mortgage refinancings account for a large share of
lending activity throughout the District. Commercial construction
loan balances at some California banks continue to shrink as
existing loans are written off and few new loans are originated.