January 19, 1994
Summary
Economic weakness persists in California, particularly in the
southern part of the state, but much of the rest of the Twelfth
District shows signs of solid economic growth. Weakness in
manufacturing, construction, and real estate markets continues to
drag down the Los Angeles area economy, while other regions of
California are showing signs of bottoming out or of modest
improvement. 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
solid growth across several sectors. Furthermore, the economies of
intermountain states continue to boom. Business sentiment is strong,
and holiday retail sales were reported good in most markets.
Business Sentiment
Sentiment among Twelfth District business leaders has improved
significantly in recent months. Almost all 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 three-quarters
in November, two-thirds in October, and one-half in August.
Furthermore, it is the highest such proportion in the six-year
history of this survey. Respondents from California and western
Washington, however, expect their regions to have slower growth
relative to the nation.
Retail Trade and Services
Retail activity is reported generally strong, with contacts in most
District markets reporting good retail sales for the Holiday season.
In Utah and Idaho, retail sales were reported nearly 10 percent
above their year-earlier level. Sales of automobiles and household
durables associated with new-home purchases accounted for much of
this increase. A contact in Oregon reports that sales were 6 to 8
percent above a year earlier, with major strength in appliances and
housing-related expenditures and relative weakness in apparel
spending. In the Puget Sound area, retail sales were reported
generally good. In the California central valley, a contact reports
stronger sales than a year earlier-and also strong post-holiday
sales. In the Los Angeles area, retailers were reported to be
generally pleased with holiday sales, but the sales peak was late
this year as customers waited for price discounts. Post-holiday
sales were reported particularly strong. San Diego retailers
reported good holiday sales stimulated by advertising and
discounting. Another contact, however, reports that sales in
southern California were worse than in northern California,
reflecting the divergence in overall economic conditions.
Conditions in service-related industries are mixed. A contact in the newspaper industry reports that advertising activity was disappointing in 1993, but showed an increase in both volume and revenue during the fourth quarter. The southern California visitor industry is reported in the doldrums. Hotel occupancy in the region was very weak in the fourth quarter, and while bookings for early 1994 are above a year earlier, it is uncertain whether actual occupancy rates will improve. Hotel occupancy also is reported to be still dropping in Hawaii.
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. Aircraft-
quality aluminum continues to be sold at substantially discounted
prices, with both raw material and fabricated products prices
reported soft. In contrast, the electronics industry in Oregon is
reported to be performing well. A contact in the electronics
industry reports that spending on personal computers and network
peripherals continues to grow rapidly. A contact in the California
telecommunications industry reports a slight gain in both usage and
new business in the fourth quarter, but that gain is still well
below what is typical of a recovery.
Capital spending plans are reported generally cautious in most industries. Commercial lenders in Oregon report that, with the exception of the high technology industry, the general sentiment is one of caution for capital spending in 1994, with the level planned at or slightly above the 1993 level. A contact in the auto dealer industry, however, reports that low interest rates are having a beneficial effect on capital expenditures.
Agriculture and Resource-Related Industries
Most contacts report a generally favorable outlook for agriculture.
Average farm prices are below year-earlier levels due primarily to
lower prices for beef and wheat. Production of potatoes is reported
to be down in Idaho. However, Washington and Oregon contacts report
strong potato production. Midwest weather conditions were reported
to create unusually strong markets for the frozen vegetable industry
in the Pacific Northwest during the fourth quarter of 1993. Another
contact, however, projects continued weak conditions in the seafood
industry with both demand and prices decreasing. Several contacts
report that agricultural exporters are pleased with the passage of
NAFTA and the successful conclusion of the GATT negotiations.
Construction and Real Estate
District construction and real estate markets are mixed. Weak
conditions are reported in southern California, both in residential
and nonresidential markets. A contact in northern California reports
that commercial real estate is still weak, with office rents
expected to remain low for several years, and virtually no
transactions in the transfer of office properties. In contrast,
contacts in Idaho report continued strong housing construction as
growth in jobs and population has resulted in vigorous demand for
housing. Several contacts report shortages of skilled construction
labor.
Financial Institutions
Varied conditions are reported across District financial markets. In
California, a contact reports that the banking industry continues to
show signs of modest improvement, including stronger asset quality
and a slight pickup in loan demand. Much of the improvement,
however, has come from large banks. Small and medium-sized
institutions remain under pressure, showing less improvement in
asset quality and greater exposure to real estate loans. A contact
from the Puget Sound area reports somewhat weaker loan demand and
increasing price competition for commercial and industrial loans and
also for mortgage loans. Vigorous rate competition for loans also is
reported by contacts in Utah.