May 6, 1992
Summary
Economic conditions are improving very slowly in much of the Twelfth
District, with moderate growth in intermountain areas offset by
weakness in California. Retail and auto sales are reported soft in
several markets, and continued layoffs are reported in defense-related manufacturing. Nonresidential construction remains weak in
most District markets, although residential construction and home
sales show some pick-up. Mortgage refinancing activity appears to
have peaked, and overall loan demand remains flat. Continued drought
threatens agriculture in Idaho and eastern Oregon, while prospects
for California have improved with recent rainfall. Wage and price
increases are modest, with some exceptions such as lumber and health
care.
Business Sentiment
Economic expectations of Twelfth District business leaders were
little changed since our last report, with most respondents
expecting sluggish growth. As in March, almost two-thirds of
respondents expect the economy to expand, but at a rate below 2.5
percent. Only 5 percent of respondents expect output to decline in
at least two of the next four quarters, down slightly from 9 percent
in March. Expectations are most optimistic for housing starts. A
large majority of respondents expect inflation to decline or remain
stable.
Wages and Prices
Contacts report little upward pressure on wages and prices in most
District markets, although lumber and health care are notable
exceptions. Wholesale lumber prices have risen to record levels due
to extremely tight supply conditions associated with harvesting
restrictions and the recently adopted tariff on Canadian lumber.
Health plan costs are expected to increase at double-digit rates in
1992, but the rate of increase does appear to have moderated
somewhat from last year. Energy prices remain low. One oil industry
contact expects several years of little or no price growth.
Retail Trade and Services
Contacts report retail and auto sales as soft in most District
markets. Sales of new cars in Utah are reported to be "spotty", with
buyer confidence affected by recent layoff announcements. A contact
in Idaho reports some deterioration in auto sales since the last
report, with traffic down 20 percent since mid-March. In contrast,
auto dealers in Oregon report that after an extremely weak February,
auto sales improved in March. Auto sales in the Puget Sound area
also were above their year-earlier level in March. Contacts from
large department stores report generally soft conditions. Sips of
improved retail activity, however, are reported in Arizona following
weakness early in the year, with auto, eating and drinking
establishments, and general merchandising sales leading the way.
District-wide food store sales are reported flat.
In southern California, the slump in ad revenue and circulation has claimed one of only two daily Spanish-language newspapers in Los Angeles. One media contact reports that employment and real estate ads are down 11 and 19 percent, respectively, from their weak year- earlier levels. Auto advertising, however, shows an increase of 9 percent over the previous year. Circulation and help wanted advertisements in Oregon and the Puget Sound area have begun to show modest gains.
Manufacturing
Job losses continue to be reported in defense-related manufacturing
firms across the District. Arizona manufacturing had significant
losses in February, principally in aircraft and missiles. Defense-
related manufacturing has fallen in Utah as well. The Boeing company
has estimated that employment will be reduced by 6,500 during 1992,
reflecting the cutbacks in defense and a slowing of the 737
production line. Orders continue to climb for Boeing 777s, however,
which are scheduled to enter passenger serve in mid-1995. Some
nondefense manufacturers in Utah, however, are reporting a leveling
off of the long slowdown in orders. While large job orders are still
down, an upturn in small orders is having a leveling effect on the
total volume of sales. Medical equipment manufacturers also are
reporting an apparent leveling off in their sales slide of the past
six months.
Agriculture and Resource-Related Industries
Parts of Idaho and eastern Oregon are suffering one of their worst
drought years on record. Crop shortages are possible in potatoes,
beans, sugar beets, and alfalfa, and utility costs are expected to
rise. Prospects for crops in California have improved due to recent
rainfall. Low ocean salmon counts-in part due to the drought-are
causing severe curtailment of the 1992 ocean commercial and sport
salmon fishing season. Supply conditions in lumber remain extremely
tight due to environmental restrictions. In the last 30 days,
however, there has been some softening of demand for wood products,
and inventory levels have increased at the distribution and mill
levels.
Construction and Real Estate
While home sales and residential construction activity are reported
up in most District markets, prospects for nonresidential
construction continue to look weak. In Hawaii, for the first time in
years, construction employment is declining, in part reflecting a
drop in Japanese investment. In Washington, government construction
spending is off substantially, and Boeing's major facilities program
appears to be slowing with construction schedules for projects being
extended. Recent mergers of financial institutions are expected to
put further upward pressure on vacancy rates in several District
markets.
Financial Institutions
Demand for loans is reported to be weak to moderate in most District
markets. Applications for mortgage refinancing in Utah have tapered
off since January. Several southern California bankers are beginning
to see real estate values affecting small business credit
availability, since real estate holdings remain a primary source of
collateral for small business loans. Nonperforming loans are
reported to continue increasing modestly.