December 8, 1993
Summary
Economic weakness persists in California. Much of the rest of the
Twelfth District, however, shows signs of solid economic growth. In
California, manufacturing, construction, trade, and financial
sectors remain sluggish. Economic activity also lags in western
Washington, reflecting retrenchment in aerospace, and in Hawaii,
reflecting a weak visitor industry. Oregon and Arizona, however, are
experiencing modest growth in the construction, trade, and financial
sectors. Furthermore, the economies of intermountain states continue
to grow at a robust pace. Business sentiment has improved since our
last report, and expectations for holiday retail sales are good.
Business Sentiment
Sentiment among Twelfth District business leaders improved from our
October report. Three-quarters 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 two-thirds in October
and one-half in August. Most other respondents expect the economy to
expand, but at a rate below trend. Respondents from California and
western Washington expect their regions to have slow growth relative
to the nation.
Retail Trade and Services
Retail activity is reported improving. The weakest conditions are in
California, where contacts report flat to slightly improving
consumer confidence and retail sales. For example, one national
retailer reports strong sales in October at its stores outside of
southern California. Another national retailer, however, reports
that California sales are "showing signs of life." Several contacts
mention very strong retail sales in both Utah and Idaho. Automobile
sales in these states are surging, and spot shortages of new
domestic cars and light trucks are reported. Consumer confidence in
these states is excellent, and merchants are expecting significant
increases in holiday sales over a strong performance last year.
Consume confidence, and expectations for the holiday season, are
also reported improving in Arizona. Optimism also is reported among
retailers in Oregon. Reports from the Puget Sound area are mixed.
One contact reports that the recent Asia-Pacific trade conference
generated significant visitor industry activity. The contact also
reports high levels of activity in retail and restaurant
establishments. In contrast, another contact cautions that the
holiday retail season will be subdued due to expected further
layoffs in aerospace.
Conditions in service-raised industries are mixed. Potential health care reform is reported to be leading to consolidation among health care providers. Contacts indicate that law and accounting firms are reducing overhead through early retirement. In California, passage of a sale tax extension is expected to assist local government in the short run. A recent voter initiative in Washington is likely to limit state government spending and lead to restructuring in the next year. In contrast, fiscal conditions are good in state and local governments in Utah and Idaho.
Manufacturing
Manufacturing activity is mixed in the District, with lingering
weakness centered in aerospace and defense-related industries.
Layoffs in these sectors continue in several district states-with
southern California and western Washington most affected. Sluggish
conditions are also reported in California's machinery, metals, and
construction-related manufacturing industries. One contact notes
that the District's aluminum industry is suffering from an over-
supply of ingot from foreign suppliers. Primary domestic aluminum
producers are reducing capacity, and aerospace companies are
benefiting from significant price reductions.
Other manufacturing industries show signs of improvement. Some types of cable television distribution equipment is reported in short supply, with some larger companies having bought out the complete stocks of some suppliers. Sales by western food processors of peas, corn, beans, and pumpkins are reported very strong due to a shortfall from the Midwest.
Agriculture and Resource-Related Industries
Most contacts report a generally favorable outlook for agriculture.
Weather conditions in the Midwest are reported to have raised prices
for grains, corn, and beans. Abundant lettuce supplies are reported.
The cotton harvest is about complete with average yields and
somewhat lower prices than a year earlier. Conditions in the seafood
industry are reported poor. Heavy crude oil prices in California are
reported declining. Orders for wood products remain firm, with
inventories very low.
Construction and Real Estate
District construction and real estate markets are mixed. Sluggish
conditions persist in most real estate markets in southern
California. Sales in the high-end residential market remain weak-and
commercial vacancies are reported very high. A contact in Los Angels
reports that federal aid is stimulating the construction of low
income housing. In the central valley of California, a contact
reports steady sales of entry-level housing-but sluggish conditions
for higher-priced housing. The housing market in western Washington
is reported stable--with steady sales and firm prices. In Oregon,
conditions in the construction industry are improving. Contacts in
Utah and Idaho report some capacity and supply constraints in
residential construction, but nothing that will be disruptive.
Financial Institutions
Varied conditions are reported across District financial markets. A
contact with a large California bank reports that the industry
continues to feel the effects of recession-with business loan demand
remaining weak and overall credit demand remaining lackluster. A
contact in the thrift industry in southern California reports
continued weak credit demand due to soft real estate conditions. In
Arizona, a contact reports that consumer loan demand remains strong,
and that commercial loan demand finally shows signs of reviving. A
contact from the Puget Sound area reports a strong banking sector,
although the level of mortgage refinancings may recede from its
current high level. Healthy growth in deposits and loans are
reported in Oregon.