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The Twelfth District economy grew at a strong pace in the most recent survey period, although reports indicate moderate restraining effects from East Asian economic developments. Consumer demand for retail products expanded at a solid pace, and sales of business and consumer services were brisk. Most manufacturers continued to operate at or near capacity, despite noticeable declines in exports to East Asia in several sectors. Construction activity and real estate markets remained vibrant, particularly in California. Banking conditions were very healthy. Upward price pressure increased noticeably for some services but remained minimal for manufactured goods.
Business Sentiment
Respondents expect a slower but still solid performance by the national economy and their respective regional economies. Of those surveyed, 60 percent expect national GDP to grow at its long-run trend rate and unemployment to remain stable during the next year. Just over half also expect inflation to remain stable, although the percentage expecting higher inflation has increased from 17 to 30 percent since the beginning of the year. Respondents' expectations for their regional economies remain very positive, although this outlook is tempered somewhat by an ongoing rise in the percentage expecting reductions in net exports from their regions.
Retail Trade and Services
Reports on retail sales were mixed but positive overall in the recent survey period. The reports were strongest for California, where respondents noted solid sales increases for most product categories. Throughout the District, sales were particularly strong for furniture and fixtures that often accompany home purchases and improvements. Automobile sales reportedly were weak overall, although several responses from Oregon suggest improvement in March over the preceding two months. Sales of soft goods such as clothing reportedly were held down by bad weather in many areas.
Sales of business and consumer services continued at a brisk pace, with particularly strong reports for media and communications services. Advertising sales grew rapidly in Oregon, with double-digit revenue increases reported for radio and television companies, and local providers of cable television saw strong demand. Southern California's hotel and tourist sector posted very healthy sales. Few supply constraints were reported among service providers. However, respondents noted capacity constraints for truck and rail transportation in some areas, and a buildup of containers occurred at the Port of Los Angeles, due to a growing excess of imports over exports. In addition, providers of health services faced rising cost pressures.
Manufacturing
District manufacturing expanded further in the most recent survey period, despite noticeably reduced exports in some sectors. Machine tool orders and sales remained very strong�double their 1997 levels for some products, according to one respondent�despite declines in East Asian exports. Boeing is producing commercial aircraft at full capacity, despite growing order delays by East Asian airlines. Demand for District wood products was kept high by strong housing starts, and pulp and paper orders rose despite a jump in paper imports. In
contrast, respondents reported employment cutbacks by a major maker of athletic equipment and a slowdown in high-tech equipment sales and employment growth, both associated with weak East Asian demand. Sales prices generally remained flat for both durable and nondurable items, with several respondents noting the restraining effect of low prices for imports from East Asia.
Agriculture and Resource-Related Industries
Early season agricultural conditions were mixed. Inventories were higher than normal for many crops, due in large part to reduced exports to East Asia. One respondent reported that wheat prices are at their lowest level in 4� years; livestock sales and prices also have been weak. In California, heavy winter rains generated ample water supply but delayed the planting of some crops, such as cotton. The heavy rains may reduce yields for various California crops later this year.
Real Estate and Construction
District real estate markets and construction activity remained vibrant in the recent survey period. Residential real estate sales and prices continued to grow rapidly throughout California, and commercial and industrial vacancy rates fell further in the San Francisco Bay Area. Despite reports of slower increases in home prices in several states besides California, low mortgage rates kept home purchases and construction near or above 1997 levels. In Alaska, both residential and nonresidential construction picked up recently; the latter was bolstered by oil industry development and highway construction projects.
Financial Institutions
Banks in most areas reported strong loan demand, healthy earnings, and readily available credit. The strongest growth reportedly occurred for real estate and business loans, with slower growth in consumer loans. Competition by banks for both loans and deposits remained stiff, and loan rates in general have been favorable to borrowers.
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Dallas