Beige Book Report: San Francisco
June 19, 1996
Summary
Reports from contacts in the Twelfth District indicated continued
strong economic activity in recent months, with some hints of an
acceleration in economic growth. Residential real estate sales
volumes and construction generally moved higher, and moderate growth
of consumer spending continued. District manufacturing activity
picked up in recent months, particularly among suppliers of
building-related products. Although businesses are increasingly
optimistic about the outlook for regional and national economic
growth, about one-third of respondents expect inflation to worsen
over the next four quarters.
Business Sentiment
Businesses are increasingly optimistic about the outlook for
national and regional economic growth, with about 90 percent of
respondents now expecting national growth over the next four
quarters to match or exceed its long-run average pace, up from a
recent low of about 40 percent in February. More than half of
business contacts expect no substantial change in national
unemployment or inflation in the near term, but about 37 percent of
respondents expect inflation to worsen over the next four quarters,
up from 19 percent in February. Respondents' expectations for
regional economic growth are particularly optimistic, with about 70
percent predicting better growth in the region than in the U.S. as a
whole.
Retail Trade and Services
Retail sales in most District states reportedly were strong and
increasing in recent months. Many respondents from the fast- growing
Intermountain states identified auto sales as a spending category
with particularly large gains, but spending on nondurables, such as
food and clothing, also was reported to be up noticeably in these
states. Retail sales appear to be accelerating in Washington, after
slowing around the turn of the year. Within California, retail
spending reportedly has been particularly strong in the San
Francisco Bay Area, and most respondents from Southern California
noted a firming of consumer spending there. Throughout the District,
retailers have experienced increased shipping costs from the spike
in fuel costs, and most report the fast passthrough of such higher
costs to retail prices.
Tourism activity reportedly is increasing in California, Utah, and some other District states. Hotel occupancy rates reportedly have been high in recent months, although some respondents did express concern that plans for long-distance driving vacations could be affected by the run-up in gasoline prices. Among other service- producing industries, computer-related business services activity reportedly is increasing rapidly in Washington and Northern California, where demand for telecommunications services also remains strong. Long-distance trucking services remain in high demand throughout the District, despite the recent introduction of fuel surcharges by shipping companies.
Manufacturing
District manufacturing activity picked up in recent months,
particularly among suppliers of building-related products.
Manufacturers of construction machinery reportedly benefited from
increased sales, and orders for wood products such as lumber were
solid. In the Pacific Northwest, manufacturers of specialty
construction items were having trouble keeping up with the strong
pace of orders, so delivery lags lengthened. Among other investment
goods, order backlogs for machine tools were reported to be high;
demand for computing equipment remained robust, but the pace of
increase appeared to slow a bit. The inventory correction which has
dampened production in industries such as steel, autos, and selected
other consumer goods, was perceived to be near completion.
Agriculture and Resource-Related Industries
District agricultural producers report mixed conditions. Western
cattle ranchers lament a continued drop in cattle prices, as
livestock producers still have not worked off excess inventory. In
California, production of nuts, tree fruits and grapes appears to be
slightly down this season, although grape producers are benefiting
from very high demand for wine grapes.
Real Estate and Construction
District real estate markets were relatively strong in recent
months. Respondents noted increasing home sales volumes and prices,
and residential building activity also increased. The growth of new
residential construction was particularly strong in Oregon, Utah,
and Idaho. Within California, real estate and residential
construction activity continued to be mixed, with stronger
conditions in the San Francisco Bay Area than in the Central Valley
and Southern California.
Financial Institutions
District bank respondents generally report wide availability of
credit, with high levels of bank liquidity, strong capital
positions, and healthy earnings. Loan volumes were reported to be
increasing at selected banks. Increased economic activity reportedly
is fueling a strong loan market in the San Francisco Bay Area.
However, some California banks are experiencing slower loan growth,
with much of the weakness centered in consumer loans and first
mortgages. In Washington, loan volumes are robust, particularly in
the commercial and industrial lines. Some bank respondents reported
difficulties hiring bank tellers at the prevailing wages,
particularly in the tightest labor markets, such as Salt Lake City
and Las Vegas.