November 2, 1994
Summary
It is increasingly apparent that the California economy is growing
modestly, and in the remainder of the Twelfth District economic
conditions generally remain strong. However, reports suggest that
economic growth in Idaho and Utah is moderating relative to the
earlier robust pace. Among sectors, retail sales are strong, and
conditions in the service industry generally remain solid.
Manufacturing production remains strong outside of the aerospace
industry. Agricultural conditions are mixed, with weak prices
reported for several important District crops. Real estate and
construction activity remains at high levels in most pans of the
District, but expectations for future construction levels have been
marked down. Loan demand generally is increasing.
Business Sentiment
The survey of Twelfth District business leaders finds they generally
remain optimistic about real activity, but they expect a pickup in
inflation over the next four quarters. About two-thirds of the
respondents expect inflation to worsen, and most of the remaining
one-third expect no further progress on inflation next year. About
two-thirds of the respondents expect national growth to exceed 2 1/2
percent during the next four quarters, a higher fraction than in
September. Regional growth over the next four quarters is expected
to exceed the national average in Arizona, Oregon, and the
intermountain states, match the national average in Washington, and
be only slightly weaker than the nation in California.
Retail Trade and Services
Generally solid retail and service sector conditions continue to be
reported in most parts of the District. In California, Idaho, and
Oregon, motor vehicle sales are reported to be strong, creating
shortages of some new models, especially full-size domestic trucks.
In Southern California, retail sales in August were up 1.8 percent
from a year earlier. Reports from Reno, Nevada and the San Francisco
Bay Area are cautiously optimistic about holiday season retail
sales.
Tourism is strong or improving in most of the District. Hotel occupancy in Salt Lake City remains high. In Southern California, hotel industry conditions have improved significantly but remain below pre-recession levels.
Conditions are mixed among other service industries. In Oregon, business services employment growth has been strong. In the tri- cities area of eastern Washington, economic activity is being held down by cost-cutting at firms under contract to the Department of Energy. In some areas, sales of hospital suppliers are weak, as continued mergers have slowed major purchasing decisions at hospitals.
Labor markets are reported to be tight in many areas, especially for jobs in the retail and service sectors. In several District states, openings for entry level jobs in food stores are remaining vacant at current wages; food store wages are expected to rise 4 to 5 percent in 1995, after rising 3 to 3 1/2 percent in 1994. In Idaho, wages for experienced computer programmers have increased sharply in the past year.
Manufacturing
District manufacturing production is recovering further, although
additional restructuring is holding down employment in some areas.
In the Pacific Northwest, heavy-duty truck manufacturing is
expanding, but commercial aerospace production has not yet
rebounded. Pulp, paper, and newsprint orders are strong, and
inventories are declining. In Oregon, further increases in several
large high technology projects have been announced. In Idaho, the
elimination of 600 jobs by one large high technology manufacturer is
expected to be partly offset by expansion at another manufacturing
firm.
Agriculture and Resource-Related Industries
Agricultural production remains strong, but farm income is being
held down by falling prices for some crops. Prices are reported weak
for potatoes, apples, barley, and corn. In eastern Oregon and
Washington, wheat yields are good and prices are high. California
specialty crop producers report continued strong export demand and
note that packaging and ocean freight costs are increasing. Cattle
prices remain low, and the cattle feeding industry is reported to
have lost a substantial amount of equity in the last several years.
Cattle producers in eastern Oregon report a lack of irrigation
water. Without sufficient rainfall, drought conditions in 1995 are
predicted to be severe in California, Idaho, Oregon, and Washington.
Real Estate and Construction
Real estate activity generally remains at high levels despite some
slowing in parts of the District. In the intermountain states, home
sales have slowed, especially at the higher end of the market; sales
price increases are expected to moderate in 1995. In Idaho,
apartment vacancy rates are reported to be increasing. In the
Pacific Northwest, some slowing of Washington home sales was
reported, but otherwise activity remains robust. Within California,
home prices are reported below year-earlier levels in most areas.
Construction activity remains at a high level in many parts of the District, but growth has moderated in some areas. After earlier strong gains, housing starts slowed in Utah, and commercial construction activity slowed in Idaho. In Los Angeles as a whole, housing permits are up sharply, but construction of affordable housing remains weak. Increases in building activity continue in Arizona and Oregon. Respondents from Idaho, Oregon, and Utah noted a shortage of skilled construction workers. Construction wages and costs of raw materials are reported to be increasing rapidly.
Financial Institutions
District banking conditions generally are strong, with solid loan
demand in most areas. At large California banks, business loan
demand has picked up, but consumer lending remains sluggish. Bank
lending policies are reported to be increasingly aggressive. In most
geographic areas, employment at banks is expected to remain weak,
owing to consolidations and other cost-cutting efforts. Wage
increases at banks are expected to be moderate, except for some
entry level positions.