November 3, 1993
Summary
Economic activity is reported generally improving across much of the
Twelfth District, but California's economy remains sluggish.
Relatively weak conditions also are reported in western Washington,
affected by retrenchment in aerospace, and Hawaii, undergoing a
slump in the visitor industry. In contrast, conditions are strong in
eastern Washington, Utah, Idaho, and Nevada, and favorable
conditions are reported in Oregon and Arizona. In California,
weakness continues in aerospace and defense-related manufacturing
and construction. Some improvement is reported, however, in
California's electronics and retail trade sectors, and continued
strength is reported in sectors such as motion pictures and
agriculture. While contacts in California indicate more positive
signs than in previous reports, the overall picture remains weak,
particularly in the south.
Business Sentiment
Sentiment among Twelfth District business leaders shows some
improvement from our August report. About two-thirds 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 up
from one-half in August and July, and returns to the proportion seen
in early 1993. Most other respondents expect the economy to expand,
but at a rate below trend. Several contacts report that capital
spending and hiring plans are being delayed due to uncertainty
regarding medical costs. Lower interest rates are reported to have
done little to change capital spending plans in recent months.
Retail Trade and Services
Retail activity is reported generally improving. One large District
retailer reports that October sales have been stronger than August
and September, with earnings strong and inventories coming down. The
same contact reports "no inflation on the horizon" in its cost
structure. Another major retailer also reports slightly better sales
in October--especially in California. The retailer reports that
activity in Utah remains quite strong, but that it is still soft in
Washington. Demand for autos and consumer durables is reported
strong by contacts in several areas--in part due to lower interest
rates. Auto dealers in Idaho report product shortages.
Conditions in service-related industries are mixed. Contacts report high-end restaurant closings in southern California. A contact in telecommunications reports especially weak conditions in southern California. The motion picture industry, however, remains strong. Outside of California, most service-producing sectors are doing well. However, cutbacks in government are reported in several states, and visitor industry conditions remain weak in Hawaii.
Manufacturing
Manufacturing activity is mixed in the District, with weakness
centered is aerospace and defense-related industries. Cutbacks in
these industries are reported continuing in Arizona, California,
Utah, and Washington. Some announced aerospace layoffs in
Washington, however, have been deferred until next year.
Other manufacturing industries show signs of improvement. In southern California, demand for transportation equipment is expanding due to light rail projects and new bus orders. High-tech industries are reported improving in Oregon and Washington. In Idaho and Utah, production of computers, semiconductor chips, and software is reported strong. A contact in northern California reports strong demand for electronics, and double-digit growth in components of communications equipment. Medical electronics, however, is reported weak due to the uncertainty of health care reform. Furthermore, strong final demand in electronics is not being reflected in increased hiring.
Agriculture
Most contacts report a generally favorable outlook for agriculture.
Contacts report that the livestock industry is doing well, despite
some recent lower prices for and feeder cattle. Grain prices are
reported somewhat higher. In California, acreage is up because the
end of the drought has increased water supplies. In the Pacific
Northwest forestry industry, volume is reported down due to public
harvesting restrictions, but profits are reported up for private
owners of timber. A contact in Idaho agriculture reports strong
conditions for vegetables, fruits, and cattle--but some weakening in
aquaculture, fishing, and seafood.
Construction and Real Estate
District construction us real estate markets are mixed. Housing
starts, housing sales, and commercial real estate activity are
reported soft in southern California. Prices in high-end residential
areas are reported down 30 to 40 percent from peak levels, and
medium-range housing is reported down 15 to 20 percent. Contacts in
northern and central California also report depressed conditions in
most real estate sectors. Low interest rates, however, are reported
to have stimulated some low-end housing construction in California.
Publicly-funded heavy construction also has fared relatively well
during the state's downturn. A contact from Tucson reports strong
sales of existing homes, strong new construction, and low vacancy
rates for apartments. Contacts expect construction conditions in
Oregon and Alaska to strengthen over the next year. In Oregon,
construction conditions are tight with shortages reported for labor
and supplies. Conditions in Utah and Idaho remain strong.
Financial Institutions
Varied conditions are reported across District financial markets. In
California, loan volume is reported flat and additional layoffs were
announced by financial institutions due to recent consolidation.
Stronger conditions are reported elsewhere. For example, in Oregon,
banking conditions remain strong, with deposits and loans reported
up and loan delinquencies reported down. A contact from Utah reports
that lower interest rates have led to considerable corporate
refinancing, but have not stimulated new loan demand and new
investment spending. Contacts in several areas report that mortgage
refinancing activity is increasing again.