March 18, 1992
Summary
Economic conditions in the Twelfth District range from persistent
weakness in California to moderate growth in intermountain regions.
Sales of homes and autos are responding positively to recent
interest rate reductions. Continued employment declines, however,
are reported in the defense-related manufacturing, banking, legal,
and government sectors. Wage and price increases are modest, with
the exception of health care. Mortgage refinancing activity appears
to have peaked, and overall loan demand remains weak. Recent rains
have improved agricultural prospects.
Business Sentiment
Economic expectations of Twelfth District business leaders improved
modestly since our last report. Only 12 percent of respondents now
expect output to decline in at least two of the next four quarters,
compared to 32 percent in January and 25 percent in November. Most
respondents (70 percent) expect the economy to expand, but at a rate
below 2.5 percent. The proportion of business leaders expecting
improved business investment, consumer spending, and housing starts
continues to increase. Expectations regarding housing starts were
particularly optimistic. with 79 percent of the respondents
projecting some improvement in the next four quarters, up from 40
percent in November. Ninety-one percent expect inflation to decline
or remain stable.
Wages and Prices
Upward pressures on wages and prices remain minimal throughout most
of the Twelfth District. Most wage increases in the Twelfth District
are reported in the 3 to 4 percent range. Smaller increases are
projected for state workers. Employee benefits, however, continue to
rise due to health costs, which continue to increase at double-digit
rates. Lumber prices are rising, due to decreased supply and rising
demand. Outside of these sectors, inflationary pressures are hard to
find. Contacts in retail establishments report continued discounting
and flat wholesale prices. Materials prices are reported down for
several industries, with paint materials prices down 2 to 3 percent,
and discounting of newsprint expected to continue.
Retail Trade and Services
Retail sales remain soft in most of the Twelfth District. A major
retailer reports inventories are at their planned levels, and that
no shortages exist. Another retailer reports they continue to reduce
staff size, and that all retailers are emphasizing cost control. One
bright spot is auto sales, however, with dealers in several markets
reporting increased activity since January.
Professional firms in Washington expect flat to modest growth, with some increased competition in the legal field reported. Print media contacts in California report that circulation and advertising volume remain below their year-earlier levels. Classified ads in employment, real estate, and autos are down. Conditions in California public education remain uncertain, with hiring plans being delayed due to possible budget cutbacks.
Manufacturing
Manufacturing activity in the Twelfth District remains sluggish,
with layoffs continuing in aerospace, electronics, and defense-
related industries. Orders for helicopters and transport aircraft
have fallen in Oregon. Boeing's Washington payroll has dropped about
2,700 since its 1989 peak, with 600 lost since October, mostly in
defense and without direct layoffs. Another 6,500 reduction has been
announced for 1992 with a layoff of 2,400 by May. Boeing projects
its long-term prospects as strong, however, forecasting a 5.2
percent annual increase in passenger traffic through 2010. Their
expansion plans appear firm. The overall outlook for business
investment has improved, but contacts report little immediate impact
of interest rate reductions on capital spending.
Agriculture and Resource-Related Industries
The agricultural outlook in the Twelfth District has improved
somewhat due to recent rains. Farmers in California are now hoping
for increased allocations of water, though the lingering effects of
the drought will limit deliveries and keep pumping costs higher.
Timber sales for this fiscal year are severely restricted. Ponderosa
pine and Douglas fir lumber prices are up dramatically due to scarce
supply, with prices in many grades at historic levels. Spot natural
gas prices are down 6 percent from last year's already low levels.
Construction and Real Estate
Residential real estate markets show signs of improvement. Sales
activity has increased in several District markets, and housing
starts are up in Idaho, Utah, and eastern Washington. Renewed
investor interest in housing developments is reported, though
financing remains tight. Conditions in the nonresidential
construction industry, however, continue to weaken in several
states, with a contact in Oregon expecting weak conditions for 1 to
2 years. Median sales prices for single-family homes are stable or
increasing slightly in most District markets, and the drop in prices
of the upper-end residential market in California appears to have
slowed. Some decline, however, is reported in commercial building
sales prices.
Financial Institutions
Twelfth District financial institutions report continued but
moderating interest in home mortgage refinancings, but otherwise
flat demand for loans. Commercial and construction loans continue to
decline, and consumer loan categories are weak with the exception of
home equity credit lines. Some deposit outflow is reported, as
interest rate reductions are inducing investors to seek higher
returns. Banks in California appear to remain cautious in making
loans, and contacts outside the financial industries report problems
in finding credit for real estate development and small business.
Small business loan demand is strong and usage of Small Business
Administration guarantees is reported up both locally and
nationwide.