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Twelfth District contacts reported vigorous economic activity in the recent survey period. Retail sales picked up in most areas, and service providers maintained high levels of activity. Durable manufacturing output continued to expand rapidly. Sales of most District agricultural and livestock products were high. Commercial banks performed well, and lively conditions prevailed in real estate markets. Respondents continued to report strong competition for highly skilled workers and some respondents noted a tightening market for entry-level workers. However, respondents reported very little upward pressure on the prices of final goods and services.
Business Sentiment
Survey respondents expect somewhat faster national and District real economic growth during the next year. Slightly over half the respondents expect national economic growth to exceed its long-run trend rate, a higher percentage than in any previous survey this year. Nearly a third expect lower unemployment, which also is a higher percentage than in recent surveys. In a continuation of recent response patterns, however, nearly half the respondents expect inflation to rise over the next year, and virtually none expect a decline. A large majority of District contacts continue to expect growth in their respective regions to outpace national growth.
Retail Trade and Services
Retail sales grew at a solid clip in most areas, with particularly strong growth reported for Southern California and Arizona. Sales of sporting goods and soft goods such as clothing were above their levels earlier in the year. In Utah, however, slowed housing purchases reportedly reduced sales growth for related retail items, and overall retail sales were "soft." Throughout the District, retail prices for clothing and pharmaceuticals were largely unchanged, and retail prices for food (particularly dairy products) declined. Among consumer durables, sales of new automobiles were at or below the high levels achieved in 1996, and prices remained largely unchanged. Retail inventories generally were stable at moderate levels, except in Utah, where slower sales growth produced rising inventories.
Conditions for District service providers were solid overall. Thriving business conditions in most areas spurred rapid expansion by providers of media and communications services. Demand for electricity and natural gas was held down somewhat by mild weather in the District; this combined with supply factors to cause stable or declining prices for both energy sources. In contrast, respondents in California and Oregon noted rising prices for health care. Tourist traffic increased noticeably in Southern California but slowed somewhat in Utah, Nevada, and Hawaii, in the latter due largely to a drop off in foreign visitors. Some service providers reported tightness in the market for entry-level workers.
Manufacturing
District manufacturing activity expanded further in the recent survey period. This sector's strength was largely attributable to rising demand for durable products such as aluminum, machine tools, computer equipment, and aircraft. Respondents from this sector continued to report strong competition for highly skilled workers. In contrast, sales and prices of wood and lumber products were held down by declining foreign demand and rising imports. Among nondurables, one Southern California respondent reported that growth in demand for pharmaceutical products slowed, and another noted that clothing manufacturers in Los Angeles encountered "slight" labor shortages. One respondent reported downward pressure on export prices associated with currency devaluations in Southeast Asia, and several noted that stiff competition in product markets held down manufacturing price increases in general.
Agriculture and Resource-related Industries
The quantity and quality of District agricultural output were high. West coast fruit, vegetable, and nut sales were very good, particularly in California. Although concerns about tainted beef temporarily slowed sales, cattle suppliers did well overall, with strong domestic demand bolstered by rising exports to Mexico and Southeast Asia. In contrast, a late season decline in crop health exacerbated the adverse effects on growers of reduced demand for Idaho potato products.
Real Estate and Construction
Real estate markets and construction activity continued to surge in many areas of the District. Home prices rose in California as a whole, with significant sales increases in the southern and central portions of the state. Commercial vacancy rates fell to extremely low levels in downtown San Francisco, but sales prices for commercial properties reportedly remained low, and there was little new construction. Residential and commercial markets tightened further in Oregon and Washington, with yearly home price inflation estimated at 5 to 10 percent in parts of the latter state. Home prices also increased noticeably in the area around Anchorage, Alaska. In contrast to most of the District, residential construction and sales have slowed in Utah.
Financial Institutions
District banking conditions strengthened further in the recent survey period. Conditions improved noticeably in Southern and Central California, with stepped-up loan growth and improved credit quality. Although strength in the equities market held deposit expansion down, banks reported ready availability of funds throughout the District.
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Dallas