August 9, 1995
Summary
The pace of economic growth in the Twelfth District picked up a bit
in early summer, although some signs of weakness remained. Retail
sales generally continued to be weak, and the earlier dropback in
construction continued to hold down manufacturing production of
construction materials. However, manufacturers of some other
products reported higher rates of resource utilization. Residential
real estate and construction activity reportedly experienced a
slight uptick in early summer, with the exception of parts of
California. District agricultural production has been hampered by
abnormal weather. The banking sector reports further growth of loan
demand in the District.
Business Sentiment
Twelfth District business leaders generally expect national economic
growth over the next year to stabilize at about its long-run average
pace. Also, about one-half of the survey respondents expect the
national unemployment rate to exhibit little change or to improve
slightly over the next four quarters. Within the region, housing
starts and growth in consumer spending are expected to continue at
about the pace of the prior four quarters, and business investment
is expected to accelerate somewhat. Business sentiment is
particularly optimistic in Oregon and Utah. California respondents
generally expect business investment and consumer spending to
continue expanding at a moderate pace.
Retail Trade and Services
Retail sales are weak for some products and in some geographic
areas. District retailers report continued weak sales at automobile
dealers and food stores, and sales of soft goods at department
stores are reportedly falling short of last year's trend. Sales of
both new and used motor vehicles were weak recently. Some retailers
in California and Utah reportedly have tempered price increases out
of fear of hurting their sales, given continued evidence of weak
consumer confidence. Relative to a yew earlier, retail sales are way
off in the Riverside area of Southern California.
District service industries generally report continued moderate expansion of demand. In California, the demand for telecommunications services is growing moderately. The tourism industry is doing relatively well in San Diego. More generally, business activity near the border with Mexico reportedly has been stimulated by a proliferation of maquiladora factories just across the border. In Oregon, demand for business services is increasing, owing, an part, to additional outsourcing by major corporations.
Manufacturing
District manufacturing activity is mixed. Some respondents report
continued high production levels, strong orders from their
customers, and a lengthening of delivery times by suppliers. In
contrast, manufacturing of construction-related materials continues
to be weak, despite a recent uptick in orders for some materials.
For example, wood products orders and prices reportedly have
increased since early June, reflecting some revival of housing
construction. However, manufacturers' sales of paint and coatings
have not experienced any uptick and remain well below year earlier
levels. In Arizona, Nevada, and Oregon, the rapid expansion by
manufacturers of advanced technology products reportedly is boosting
job growth. In Washington, an electronic components manufacturer
reports that its suppliers are experiencing capacity constraints for
the first time in this business cycle. Deliveries of farm equipment
and parts also have been delayed, and heavy truck manufacturing
remains at a high rate of capacity utilization.
Agriculture and Resource-Related Industries
District agricultural producers noted that unusual weather this year
has hurt yields and boosted prices for several commodities. Abnormal
weather reportedly is moving grain prices higher, knocking tree
fruit yields down 25 percent, and delaying harvest of the cotton
crop. However, cattle production reportedly continues at high
levels, and harvests of most types of seafood we going well.
Elsewhere, the mining industry in the Intermountain states
reportedly is stable or improving, with an upswing in gold mining in
Nevada.
Real Estate and Construction
In many areas residential real estate and construction activity
experienced a slight uptick in early summer, but in some localities
these sectors have deteriorated further. Housing sales and
construction are reported to be firming in Arizona, Nevada, ad
Oregon. Within California, the residential real estate market in the
San Francisco Bay area recently improved, according to some
accounts; however, in Sacramento, residential building permits and
existing home sales are reported down sharply, and respondents
reported concern about the impact of the closure of McClellan Air
Force Base. Residential construction also continues to slump in the
Central Valley and Riverside areas of California, and local housing
markets are weak in eastern Washington.
Commercial and industrial real estate activity in the District generally has been flat to improving. In Oregon, construction awards have increased, as the multiplier effects began to resonate from a string of expansions by high-technology product manufacturers and from earlier rapid population growth. Nonresidential construction activity also continues to be strong in southern Nevada.
Financial Institutions
District banks generally report further growth of loan demand. In
Arizona, Nevada, and Utah, strong business loan demand prevails, and
residential loan demand is reported to be rising, after slumping
earlier. In recent months, large California banks have continued to
see strong overall loan growth in the state as a whole, led by
increases in commercial and industrial loans. However, in parts of
Southern California loan demand continues to be weak.