August 4, 1993
Summary
Weakness in California continues to offset economic growth in other
District states. In California, economic activity remains sluggish
across a broad range of sectors--including manufacturing,
construction, retail, finance, and government--and new layoffs were
announced in the computer industry. Cutbacks in aerospace also are
restraining growth in western Washington. Outside of these regions,
growth is reported in several areas, with overall conditions
strongest in eastern Washington, Utah, and Idaho. Overall business
sentiment remains flat after declining from early 1993, with most
contacts expecting continued slow growth.
Business Sentiment
Sentiment among Twelfth District business leaders is little changed
from our June report. About half of the respondents expect the real
economy to expand during the next four quarters at a rate at or
above trend growth. This proportion is about the same as in June,
but is down from two-thirds in April and three-quarters in March.
Most other respondents expect the economy to expand, but at a rate
below trend. In general, contacts from Idaho, Oregon, and Utah
expect their regions to perform better than the national average.
Most contacts in California and Washington, however, expect their
regions to underperform the national average.
Retail Trade and Services
Retail activity varies widely across the District. In California,
sluggish retail sales are reported by several contacts. Soft-good
sales are reported flat and sales of cars and light trucks are
reported down 2 percent from a year earlier. Contacts in western
Washington also report weakness in retail trade. In Arizona, durable
goods sales are reported strong, especially for autos, but
nondurable goods sales are lackluster. Strong sales are reported in
Idaho and Utah.
Condition in service-related industries are mixed. Tourism is reported strong in Idaho and Utah, especially in national parks. In California, the motion picture and amusement park industries are reported to have seen rapid job growth over the past year. A contact in the legal industry reports flat or declining revenues, with downward pressure on prices. The state of California reached a budget agreement that extends temporary sales taxes and shifts property tax revenues from local governments to the state. Contacts in local government, however, report that the shift in revenues threatens to cause deep cuts in government services, employment, and wages. State budget shortfalls also are reported in Oregon and Washington. A contact with a California non-profit agency reports reduced funding from both public and private sources at a time of increased need.
Manufacturing
Manufacturing activity is mixed in the District, with weakness
centered in aerospace and defense-related industries. In Washington,
contacts report that declines in defense and aerospace continue to
impede economic growth. Contacts in California and Arizona also
report that high-tech manufacturing is contracting due to cutbacks
and restructuring in defense and aerospace. Southern Arizona,
however, is benefiting from a shift of aerospace production activity
from California. Computer manufacturing is reported strong in
Oregon. In northern California, however, layoffs due to
restructuring were announced at a major computer producer, with the
job losses concentrated in Silicon Valley.
A few manufacturing industries are showing signs of improvement. A contact from Arizona reports strength in the advanced technology sector, particularly semiconductors, customized integrated circuits, and embedded microchips. High-tech manufacturing is reported strong in Idaho. Construction equipment sales are reported up in Utah. In California, contacts report strength in textiles, apparel, and other nondurable industries.
Agriculture and Resource-Related Industries
Most contacts report a generally favorable outlook for agriculture.
Rain damage to crops is reported in parts of Oregon and Arizona, but
improved water availability has boosted production in California and
eastern Oregon. A contact in the railroad industry reports very
strong exports of fruits and vegetables. In Utah and Idaho,
depressed conditions are reported in timber and mining. In Alaska, a
contact reports weakness in logging, mining, and seafood. Recent oil
discoveries, however, have improved prospects for increased economic
activity.
Construction and Real Estate
District real estate and construction markets show widely disparate
conditions, with the weakest performance reported in southern
California. A contact in southern California reports that sales
activity and prices continue to decline for homes valued over
$300,000. Some activity, however, is reported in starter home
construction, as disposal sales of foreclosed vacant land are
providing additional and better locations for low-end projects.
Mixed conditions also are reported in western Washington, in part
due to layoffs in aerospace. In contrast, southern Arizona is
reported to be having its largest volume of home sales in years. A
surge in new residential construction is reported, and commercial
real estate also is reported to be moving well. Housing markets in
eastern Washington, Utah, and Idaho are reported to be very strong.
Higher prices for building materials are reported to he pushing up
home prices and construction costs.
Financial Institutions
Mixed conditions are reported across District financial markets. In
California, contacts report conditions as generally improving, with
modest growth expected for consumer lending. Business borrowing
remains lackluster, however, and foreclosure rates are expected to
rise in areas hit by aerospace cutbacks. A contact from Oregon
reports high profits and a strong demand for credit. Conditions in
Idaho and Utah are reported as excellent, in part due to strong
construction lending.