June 21, 1995
Summary
The pace of economic growth in the Twelfth District continued to be
slow in the second quarter. Retail sales were sluggish, especially
for automobiles. Single-family home construction remained below 1994
levels in most areas. Manufacturers of building materials reported
that the decline in home building caused weaker sales and an
increase in inventories. In contrast, firms in several other
manufacturing industries, such as metals and electronics, reported
continued strong demand and tight capacity. Tourism continues to be
a source of strength in the District. Agricultural exports generally
are strong, despite sluggish sales to Mexico. Loan growth is
reported strong throughout the District, with an improvement in real
estate and construction lending in California.
Business Sentiment
Twelfth District business leaders expect continued moderation in the
pace of national economic growth over the next year. About three-
fifths of survey respondents project national output to grow at its
long-run historical average during the next four quarters, while
about one-third expect output growth to slow even more. No survey
respondents expect a recession during the next four quarters.
Business leaders in Arizona, Nevada, Oregon, and Utah expect growth
in their regions to outpace the national average; in Idaho growth is
expected to slow to the national pace; and, in California and
Washington growth is expected to be slightly slower than the nation.
Retail Trade and Services
District retailers report weak sales at automobile dealers and food
stores, but not some recent strengthening in sales at department
stores. Department store sales are reported to have improved in May
after remaining weak through April. Among sectors, automobile sales
showed the steepest declines. In Idaho, new car sales in May were
down 9 percent from a year earlier, causing a rise in inventories
and an increase in the use of rebates. Auto sales in the Puget Sound
area are reported to have declined in each of the last two quarters.
The recent increase in U.S. tariffs on Japanese luxury cars is
causing concern, particularly in California where these cars make up
3.4 percent of total automobile sales, compared with 1.4 percent for
the nation. Food store sales have slowed since January, and food
price increases at the retail level remain modest despite larger
increases in wholesale prices.
District service industries report continued strong demand. In a national survey of travel agents, California cities held 4 of the top 11 spots in terms of advance summer vacation bookings. In Las Vegas, the rapid growth in tourist activity tapered off slightly in March, most likely because of severe weather in California. Convention attendance and air passenger traffic continued to increase in March, but auto traffic from California declined.
Manufacturing
District manufacturing activity remains mixed, with weakness in the
aerospace and lumber industries offset by strength in other sectors.
Aluminum sales and metal prices continue at high levels, although
reports suggest possible price discounting in the second half of
1995. Electronic components manufacturers report increased capacity
utilization and lengthening delivery lead times. Lumber prices are
down sharply from last year's levels, as sales slow and inventories
build. Exports of wood products to Japan remain strong, however.
Agriculture and Resource-Related Industries
District agricultural producers report generally strong export
growth, although sales to Mexico remain weak, and concern over a
trade war with Japan has increased. Japan reportedly purchases a
quarter of California's overall agricultural exports and a larger
share of some individual commodities. Japan purchased 80 percent of
this years California cherry crop at record prices. The high prices
also benefited cherry producers in Washington. Washington apple
exports to Mexico are reported down 50 percent from last year's
pact, but sales appear to have improved recently.
Real Estate and Construction
Single-family residential construction has weakened in most areas.
Building permits are reported well below year-earlier levels in
Idaho, Nevada, Utah, and the Puget Sound area. In California, home
building remains at a low level, and home prices are still below
year-earlier levels, but residential construction lending is
reported to have improved recently. Home construction remains strong
in Oregon, with a significant shortage of skilled construction
workers reported.
Commercial and multi-family real estate activity in the District generally remains strong. Commercial office rents in San Francisco are reported strengthening slightly at the higher end. In Las Vegas, commercial construction activity increased in the last quarter, as several new resort-casino projects started and the development of a large new mall continued. Apartment construction continues at a steady pace in Las Vegas. Apartment rents are reported rising at an 8 percent annual rate in Salt Lake City, but rent increases have slowed to a 4 percent annual rate in Boise. In some parts of Oregon, the apartment vacancy rate is reported to be near zero.
Financial Institutions
District banks continue to report strong loan demand. In California,
business lending is reported to have strengthened, with a noticeable
increase in construction and real estate lending. Some of the
increase in lending was attributed to increased financing of
unintended inventory accumulation, however.