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The Twelfth District economy expanded at a moderate pace during the most recent survey period. Sales of retail merchandise and services were brisk, although automobile sales were constrained by short inventories of new General Motors vehicles. Manufacturing activity was flat overall, largely due to slowing among high-tech manufacturers. Agricultural producers faced low prices and low yields for some crops. Real estate and construction activity generally was vigorous, particularly in California, although a few real estate markets softened elsewhere. Financial institutions faced strong loan demand and competitive supply conditions. The prices of most commodities remained stable or fell, but prices for some services rose noticeably.
Business Sentiment
District respondents expect tempered performance from the national economy and their respective regional economies during the next four quarters. About one-half of respondents expect national GDP to expand at its long-run trend pace. However, about one-third of the respondents expect national GDP growth to fall below its long-run trend. Just under one-half of the respondents predict that unemployment will rise, and nearly one-half expect inflation to rise. The percentage of respondents predicting stronger growth in their regions than in the rest of the nation remained high, at around two-thirds, although few expect further improvements in their regions' business and consumer spending, housing starts, and foreign trade balance during the next four quarters.
Retail Trade and Services
Sales of retail merchandise and services were rapid overall. Automobile sales were moderate; the total was held down by reduced availability of General Motors vehicles due to the recent strike. Supermarket food sales picked up in many areas. Sales of print and broadcast media space remained brisk. One exception to positive retail sales reports came from the Salt Lake City area; sales fell below expectations there, creating excess inventories and causing the cancellation of some merchandise orders. Hotel business volume was high in most areas, although signs of excess room capacity were reported for Utah and Las Vegas.
Due to sharp increases in the volume of East Asian imports, shipping prices for imports have risen substantially; inbound cargo charges are up 33 percent according to one garment industry respondent. Despite the sharp rise in import volumes, respondents did not report any delivery bottlenecks for retail items. Upward price pressure on retail merchandise has been curtailed by the availability of inexpensive imports and weak prices for commodities more generally. In contrast, the prices of services such as airline travel, health care, and cable TV reportedly have started to rise significantly.
Manufacturing
Activity in the manufacturing sector was flat overall, with weakness in high-tech manufacturing offsetting continued strength for some other products. Sales and market conditions weakened for computer and electronics manufacturers in many areas, with numerous reports of temporary layoffs and hiring reductions. In contrast, Boeing has resolved its production constraints and has operated at peak levels during recent weeks. Production activity also remained solid for durable items such as machine tools and for nondurables such as clothing, despite increased availability of inexpensive East Asian imports.
Among manufacturers and firms in other industries, investment spending on computer and information processing equipment reportedly has remained high due to Year 2000 conversion efforts. However, growth has slowed compared to recent years, particularly in some areas and industries where conversion activity is winding down. Respondents generally reported that investment in other plant and equipment was flat to down slightly on net.
Agriculture and Resource-Related Industries
Reports indicated weak conditions in the District's agricultural sector. Low recent yields on many crops in California's Central Valley reportedly were attributable to adverse early season conditions associated with "El Nino." In most areas, sales of crops and livestock have been held down by weak East Asian demand; the Alaskan salmon industry has been particularly hard hit. Due in part to import competition prices for many agricultural products have been low. Grain prices have been especially depressed, and low potato prices reportedly have caused Idaho farmers to alter their harvesting plans.
Real Estate and Construction
Real estate construction and sales activity continued at a brisk pace in most areas. Both the San Francisco Bay Area and Southern California markets exhibited very strong conditions. Prices for residential and commercial space have risen rapidly in the Bay Area. New home sales reportedly were at a ten-year high in Los Angeles, and residential construction expanded further there and in San Diego. Despite declining vacancy rates, however, new commercial construction in these cities remained limited. Construction and real estate market activity reportedly was vigorous in Arizona and the Seattle area. In contrast, construction activity was flat or slowed somewhat in Utah and Oregon. Home price appreciation has decelerated in Utah, and expansion of nonresidential construction in Oregon has been held down by cutbacks in construction of new high-tech manufacturing facilities. In areas of the District where construction activity was rapid, finding qualified workers reportedly posed a significant obstacle to new construction.
Financial Institutions
Financial institutions faced strong demand for consumer, real estate, and business loans. However, credit quality conditions reportedly deteriorated a bit for some types of business loans, particularly to firms in manufacturing sectors with adverse market conditions. Competition between banks for qualified borrowers remained high.
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Dallas