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Reports from Beige Book contacts indicate a strong pace of economic growth in most Twelfth District states in the beginning of 1997, with Hawaii being the most notable exception. Retailers reported moderate gains in recent months, and service providers in the District noted an acceleration in growth above an already rapid trend. Manufacturing activity remained strong in much of the District, lifted by a booming aircraft industry and steady expansion in high-technology equipment manufacturing. Recent increases in residential and commercial real estate demand have fueled construction activity in the District. Respondents� generally positive views of the economy were tempered by many reports of tight labor markets and increasing wage pressures. High turnover rates, reflecting frequent �job-hopping,� were noted by several contacts in a variety of industries.
Business Sentiment
District respondents expect continued strong performance in the national economy, with regional economic growth outpacing the national rate. Most respondents expect U.S. GDP growth to return to its long-run average pace, leaving the national unemployment rate near its current level. Although slightly more than one-half of the respondents expect inflation to remain near its current rate, a growing proportion of respondents expect inflation to edge up in 1997. Nearly all respondents expect growth in their local economies to outpace growth in the national economy. Respondents are optimistic about the strength of business investment and foreign trade in their areas, as well as about consumer spending and housing starts.
Retail Trade and Services
Most District respondents reported moderate growth in retail sales through February. Retail sales reports were strongest in California and the Intermountain states, where healthy sales of both durable and nondurable goods were noted. In the Pacific Northwest, inclement winter weather tempered retail sales in January, particularly in Oregon, but sales reportedly strengthened in recent weeks. Stiff competition among retailers was credited with keeping prices down, despite lean inventories and growing wage bills.
Service industry respondents in most District states continued to report robust growth. In California, the expansion of demand for telecommunications services remained solid, although growth slowed slightly. Tourism-related restaurant sales, car rentals, and hotel occupancy were very strong throughout the District. Hotel occupancy rates remained particularly high in Utah and Nevada, despite increases in the supply of rooms. Respondents indicated that the continued strength of the tourism sector has tightened the market for hospitality workers, creating a climate of �job-hopping� and putting upward pressure on wages.
Manufacturing
Reports on District manufacturing activity were generally positive. In the Pacific Northwest, the aircraft and high-technology sectors continued to expand, fueling demand for skilled workers, and putting significant pressure on wages. Food processing plants in the Pacific Northwest noted a substantial pickup in the domestic and foreign demand for their products, making capacity constraints a binding factor in further growth. In California, growth in the electronics industry remained healthy, although recent deceleration was noted. Respondents from several District states reported difficulty in finding skilled employees for manufacturing jobs; reports of labor market tightness were most pronounced in Seattle and the San Francisco Bay Area.
Agriculture and Resource-Related Industries
Agriculture conditions generally were favorable in the District. Ample moisture and fair weather conditions were noted throughout the District, benefiting both ranchers and farmers. Reports from California and Arizona indicate that grazing pastures are full and that heavy demand for grassland areas is driving up rents. Crop development in most District states is proceeding on schedule.
Real Estate and Construction
Residential real estate activity reportedly was strong in most District states. Demand for single-family homes continued to grow in the Pacific Northwest, reportedly creating local shortages of materials and labor. In the Intermountain states, sales of middle-market housing slowed in recent months, but the demand for entry level homes remained strong relative to available supply. In California, the housing market continues to gain strength. Sales of new and existing homes grew in both the San Francisco Bay Area and Southern California in recent months, and home prices are appreciating in most areas.
Commercial construction activity also was strong in most parts of the District. In the Pacific Northwest and Intermountain states, respondents report that commercial office and warehouse space is hard to find and commercial and industrial construction is rising. In Southern California, respondents report that the volume of commercial construction activity, while modest, is higher than it has been in several years.
Financial Institutions
District financial institutions continued to report healthy loan demand and generally good credit conditions. Financing remains readily available for qualified businesses and stiff competition is encouraging lenders to offer more favorable financing terms. Reports regarding loan delinquency rates and new loan quality are more positive than in previous months. The ongoing consolidation in the banking industry has left many experienced financial-sector workers available for hire, minimizing wage pressures in this industry.
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Dallas