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Reports from contacts indicated robust economic conditions in the Twelfth District during the most recent survey period. Sales were brisk for retailers and providers of services to consumers and businesses. Manufacturing activity proceeded at a moderate pace, and contacts reported a mild pickup in export demand. Conditions in the agricultural sector were somewhat weak. Activity in real estate and construction markets remained at high levels in most areas, and financial institutions reported strong demand for credit. Wages and prices exhibited limited movement overall, although increases were noted for some types of workers and some products.
Business Sentiment
Contacts generally are optimistic about the expected performance of the national economy and their respective regional economies during the next year, although they are concerned that inflation will rise. Nearly all of the contacts expect growth in national GDP to equal or exceed its long-run average pace, and two-thirds expect the national unemployment rate to remain at its current level; both figures reflect substantially greater optimism than was evident in preceding survey periods. However, the percentage of contacts expecting higher inflation has risen from about one-quarter early this year to three-quarters now. Nearly two-thirds of the contacts expect the pace of economic growth in their region to exceed the national pace, and the percentage expecting improvement in their region's outlook for foreign trade has risen to one-half, after dropping nearly to zero in mid-1998.
Retail Trade and Services
Retail sales were rapid overall, although contacts provided scattered reports of slight slowing in a few states. Automobiles and light trucks sold at a good clip in most areas of the District, and prices were flat or declined a bit. Throughout California, sales were rapid for all types of consumer items, with similar reports provided by contacts in Arizona, Washington, and Oregon. By product, the strongest sales in the District were reported for home furnishings and home electronic items. However, several respondents in Utah and Nevada noted that retail sales slowed relative to the previously rapid pace in those states, especially for some "big ticket" consumer durables and luxury goods.
In regard to services, general reports indicated that sales to businesses and consumers continued at a rapid pace. Demand was strong for communications and utility services. Export traffic through Southern California ports picked up a bit further. The sole weak report was for the tourist trade in Utah, where airport travel and hotel occupancies declined. Regarding labor costs at retail and service establishments, reports indicated annual wage increases in new union contracts and for workers in general that were in the 3 to 32 percent range or below. Price increases were limited in general, with the exception of rising health care costs and prices for pharmaceuticals. Gas prices fell somewhat in California but remained at elevated levels.
Manufacturing
Reports indicated a moderate pace of activity in the manufacturing sector, with some evidence of rising foreign demand. Demand for Pacific Northwest lumber has been "excellent," and paper and pulp processors there benefited from an increase in demand from East Asia. Several contacts noted increased sales of semiconductors and semiconductor manufacturing equipment due to rising world demand, and high-tech manufacturers in some areas reportedly have begun to expand their work forces. Conditions in the chemical manufacturing sector also improved and producers of biotechnology products faced continued strong demand. In contrast, Boeing's outlook for international sales remained weak, and activity by manufacturers of women's apparel slowed.
Agriculture and Resource-related Industries
Agricultural producers faced somewhat weak demand and low sales prices. Reports from California, Washington, and Oregon indicated that farmers were hampered by weak export demand, and sales prices have remained low as a result. Planting and growing conditions were mixed. Poor weather adversely affected grain and vegetable crops in Oregon, but conditions have improved in California's Central Valley, which reportedly is recovering from the impact of the freeze that hurt growers in late 1998.
Real Estate and Construction
Demand for real estate and new construction remained high in the District, although there were scattered reports of slight cooling in states other than California. Home construction and sales proceeded at a vigorous pace throughout California. The markets for commercial, industrial, and office space also were very active in the state, with continued low vacancy rates reported in most areas and rising rents observed in a few; strong demand has even spurred construction of new office buildings in the downtown area of San Francisco. The markets for residential and nonresidential real estate were vibrant in most other states as well. However, there were scattered reports of slight cooling in Washington, Oregon, and Idaho, and several contacts noted that residential real estate markets have loosened a bit in Utah. In Hawaii, construction activity remained torpid, although falling home prices reportedly spurred rising sales. Reports from several states indicated rising construction costs due to shortages of building materials such as drywall and skilled labor such as carpenters, but no substantive effects on overall construction activity were noted.
Financial Institutions
Contacts at banks and other financial institutions, such as venture capital firms, reported strong demand for credit and relatively good supply conditions. The only exceptions were in Hawaii, where activity in all loan categories was weak, and in Utah, where higher mortgage rates reportedly reduced mortgage refinancing activity.
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