May 5, 1993
Summary
Weakness in California continues to hold down overall District
economic activity, but generally favorable conditions are reported
in most other District states. In California, job cutbacks in
aerospace and defense-related manufacturing are combining with
recently proposed military base closings to hurt consumer confidence
and economic activity in many areas. Conditions remain sluggish in
the state across a broad range of industries. Layoffs in aerospace
also are slowing growth in western Washington. Outside of these
regions, growth is reported in several sectors, with the strongest
conditions reported in eastern Washington, Utah, and Idaho. Overall
business sentiment was little changed from our last report but
remains generally favorable, and recent rains have improved District
agricultural prospects.
Business Sentiment
Sentiment among Twelfth District business leaders, which had
improved steadily since the last half of 1992, is showing some signs
of leveling off. Two-thirds of our respondents now expect the real
economy to expand during the next four quarters at a rate of at
least 2.5 percent. This proportion is down from three-quarters in
March but up from one-half in January and one-third in November. In
general, contacts from Idaho, Oregon, and Utah expect their regions
to perform slightly better than the national average. Most contacts
in California and Washington, however, expect their region to
underperform the national average.
Retail Trade and Services
Consumer sentiment remains weak in California, with several contacts
reporting that concern over job security is negatively affecting
consumer spending. One national retailer reports that retail sales
are continuing soft; April looks slightly better than March, but the
West Coast trend is definitely softer than in the Midwest or East
Coast. Contacts in California report that small retail and service
establishments near military bases are nervous about their long-term
prospects. The visitor industry in southern California is reported
to be depressed. In northern California, a contact reports that
layoffs are continuing in the legal services industry.
Somewhat stronger conditions are reported in most other District markets, with consumer confidence noticeably more robust than in California. Contacts report stable or strengthening conditions in Idaho, Utah, and Oregon. In Idaho, for example, new vehicle registrations during March were up 26 percent over a year earlier. In Washington, however, consumer confidence is reported down due to aerospace cutbacks, adversely affecting retail trade and sales. A contact in the Washington legal industry also reports weak conditions. A contact in eastern Washington, however, reports that the region is benefiting from increased federal spending on nuclear cleanup projects.
Manufacturing
Cutbacks in aerospace and defense continue to dampen District
manufacturing activity-particularly in California and Washington.
Most recently, a major defense manufacturer announced the further
consolidation of production activity from several sites in southern
California to Tucson. The move will result in the transfer of 2,000
workers by the end of next year and ultimately eliminate more than
6,000 jobs company-wide. In Washington, cutbacks at Boeing are
proceeding. Newly announced airplane orders from China, however, are
partially offsetting weak demand from domestic airlines. A contact
in the aluminum industry reports high inventories and soft prices of
aluminum, due to both weak demand and increased supply from Russia.
Stronger conditions exist in other sectors. A contact from Silicon Valley reports that orders are strong in several segments of the electronics industry, although there are signs that the peak in growth rates may be past. Contacts from Idaho and Utah report both strong demand and tightening inventories for heavy and construction equipment. No major delivery problems are reported, however.
Agriculture and Resource-Related Industries
Recent precipitation has improved prospects for irrigation water in
several states. Grazing conditions are reported excellent, and
livestock conditions are good. Prices are reported strong for cattle
and several other agricultural products. Capacity constraints have
eased in lumber and plywood, with lumber price dropping 20 percent
from the March peak.
Construction and Real Estate
District nonresidential real estate and construction shows some
signs of bottoming out, although activity remains depressed in
several markets. A contact in southern California reports little
change in conditions, with commercial construction activity down
nearly 50 percent from three years ago. In northern California, a
contact reports that rents have stabilized, and that commercial real
estate prices should be at or near the bottom. In Utah, the overall
office vacancy dropped from 21 percent to 16 percent in the Salt
Lake City market, showing considerable absorption over the past
year.
The residential sector is showing more strength. Home building in southern Arizona is reported very strong, in part due to the shift of aerospace jobs from southern California to Tucson. Contacts also report that Utah and Idaho are experiencing a continued boom in residential construction and sales. Some shortage of lumber and construction labor is noted. In California, contacts report some pick up in real estate activity due to lower interest rates and decreased home prices.
Financial Institutions
Mixed conditions are reported across District financial markets. In
California, contacts report continued weak loan demand. A contact in
Washington reports a sharp drop in commercial and agricultural loan
requests in the last two quarters. In contrast, contacts report that
the banking industry in Arizona continues to show significant
improvement and that conditions in Utah remain strong. In Oregon, a
contact reports increased demand for credit during March and strong
profits.