December 4, 1996 Federal Reserve Districts Twelfth District - San Francisco

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Reports from Beige Book contacts portray a moderate pace of economic growth in most Twelfth District states in recent months, with an expectation of picking up to a faster underlying growth trend. Retailers generally reported moderate growth in overall sales through October and an intended inventory build-up that reflects expectations of a strong holiday sales season. Producers of services noted further growth of demand, and reports on District manufacturing production and orders generally were favorable. Residential real estate market activity reportedly was strong in most District states, with relatively high levels of residential construction continuing in the fastest-growing states. Business Sentiment District respondents generally expect continued favorable national economic performance, with regional economic growth outpacing the national rate. Most respondents expect U.S. real GDP growth next year to continue at about the long-run average pace of around 2 percent, leaving the national unemployment rate near the current relatively low level. Inflation is expected to pick up only slightly. More than three-quarters of respondents expect their local economies to do better than the nation. This optimism is apparent in California and in the fast-growing states of the Intermountain area and the Pacific Northwest. Retail Trade and Services Most District states reported moderate growth in overall retail sales in recent months. In many cases inventories have been built up in anticipation of a strong Christmas selling season, and current stocks generally were reported to be under control. The sanguine view of current inventory levels also was held by motor vehicle dealers, even though October truck sales reportedly dropped back, and auto sales remained flat. Among respondents from service-producing industries, providers of telecommunications services continue to report a strong pickup in demand. Demand for other utility services is increasing. Tourism activity in the District also continued to be strong. Hotel occupancy rates reportedly increased in several areas, including Utah, where the ski business is benefitting from an early snowfall. Manufacturing Reports on District manufacturing activity generally were favorable. The positive spillovers from the ramp-up in production of commercial aircraft at Boeing reportedly are extending to the aircraft parts industry and fueling demand for some types of primary and fabricated metals, electrical machinery, and components. However, except for titanium, material supplies have not been a problem thus far; other metal products such as aluminum appear to be in abundant supply. Lumber producers in the Pacific Northwest reported a recent pickup in demand for their products, owing both to increased building activity and increased market share, given reduced Canadian supply. Demand for pulp and paper products also reportedly improved recently. Elsewhere, in the machine tool industry, slowing domestic orders are being offset by a slight pickup in foreign orders. Agriculture and Resource Related Industries District agricultural conditions were good through the fall. In the Pacific Northwest, bountiful harvests of most crops were reported. California�s Central Valley vegetable growers were able to produce enough to take advantage of high prices, which have been elevated by short crops elsewhere in the nation. Cotton yields in California also generally were high, with the exception of some southern areas that experienced hot weather. A large drop in feedgrain prices increased the demand for feeder cattle. Real Estate and Construction Residential real estate market activity reportedly was strong in most District states, although activity slowed in some of the strongest markets and picked up in other areas. Respondents from the Intermountain states of Arizona, Idaho, and Utah reported that the recent rapid pace of sales and of price gains for existing homes was not sustained in recent months. Within California, notable increases in home prices generally were confined to the San Francisco Bay Area. In contrast, housing sales and prices reportedly picked up in Washington and Oregon, owing to strengthening economic conditions, population inflows, and increasingly binding constraints on the availability of urban land. Relatively high levels of residential construction appear to have continued in the fast-growing states where home prices have been appreciating rapidly, but home building remained weak in California. In the fast-growing Intermountain and Pacific Northwest states, non-residential construction also was reported at high levels this fall. The overall strength in demand for construction labor in such areas is exerting significant pressure on wages, given also the tightness in the broader labor market. Financial Institutions District financial institutions generally report continued favorable conditions. Loan demand increased in most areas, including Southern California, where overall economic conditions have been weaker than elsewhere. However, even in the fastest-growing areas, banks report some concern about deteriorating consumer credit quality, as measured by increasing delinquencies and bankruptcies. Return to top Dallas Full report