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Reports from contacts indicate robust economic activity in the Twelfth District in recent weeks, despite continued restraint from weak trade conditions. Sales were strong for retailers and providers of services to businesses and consumers. Respondents noted vigorous activity and further expansion in housing and real estate markets in most areas of the District. Demand for bank credit was strong. Manufacturers and agricultural producers were hampered by international trade conditions; performance in these sectors changed little compared to recent survey periods, although a slight improvement was noted in agriculture. Price increases were limited overall, despite a sharp increase in the price of gasoline and rising prices for some services.
Business Sentiment
Respondents generally were optimistic about the expected performance of the national economy and their respective regional economies during the next four quarters. The percentage expecting growth in national GDP to exceed its long-run average pace rose from about one-third in the last survey to one-half, with most of the remainder expecting average growth. About two-thirds of the respondents expect the national unemployment rate to remain stable or fall during the next year, with nearly as many expecting inflation to rise. Over half of the respondents expect better growth performance in their regions than in the nation as a whole, with about two-thirds expecting stability or improvement in their region's business investment, housing starts, consumer spending, and outlook for foreign trade. The percentage expecting stability or improvement in the outlook for foreign trade rose sharply, continuing a trend established in the last two surveys.
Retail Trade and Services
Retail sales were robust in most areas during the survey period. Auto and truck sales were strong in March; availability fell a bit, most noticeably for some makes of pickups, but was not reported to be a substantial constraint. General retail sales reports for California and Washington state were upbeat. In Idaho, Nevada, and Utah, sales of retail food and pharmaceutical products were strong in March but softened a bit in April. Despite strong demand for retail products, respondents noted excess retail capacity in some areas. Prices at the gas pump increased sharply; respondents in California reported the largest increases--up to 45� per gallon--and inventories there rose recently.
District service providers have been operating at capacity. In California, strong demand for business and transportation services kept those sectors bustling. Demand for telecommunications services was strong and grew further throughout the District. Several respondents reported a pickup in merchandise exports to East Asia, which has been reflected in reduced outflow of empty containers from West Coast ports. Although prices for most services reportedly remained stable, respondents noted increases in health insurance premiums and in the prices of hotel rooms and airline tickets.
Manufacturing
Manufacturing activity changed little in recent weeks. Production and sales were strongest for telecommunications equipment, wood products, and construction materials in general. Demand for computers and related electronic components was largely stable, with unintended increases in inventories of desktop computers noted by one respondent. Boeing has been producing aircraft at or near capacity, although international demand has remained weak and backlogs for domestic aircraft have fallen. Weak export demand remains a constraining factor for many other durable manufactured items, and stiff import competition was reported for the garment industry and manufacturers of paper products. Reports on price changes revealed no consistent upward or downward movement.
Agriculture and Resource-Related Industries
Respondents noted slight improvement over weak demand conditions reported in previous surveys. Sales of many District agricultural products were hampered by weak export demand, although some strengthening was reported in California and Arizona. The price of domestically produced rice reportedly rose to very high levels, due to an increase in international demand combined with low yield from California's rice crop. District cattle producers have curtailed supply in response to earlier weak market conditions, and this has combined with an improvement in demand for beef to raise cattle prices by 5 to 7 percent.
Real Estate and Construction
The markets for real estate and construction were highly active in most areas of the District, especially in California. Reports from all areas of California indicate vigorous housing construction and sales activity, although the rate of price appreciation reportedly has slowed a bit in some areas. Regarding California's commercial sector, vacancy rates in most areas were low or declining, with "almost no vacancies" reported for office space in San Francisco. Home sales have been very rapid in Arizona, with homes reportedly remaining on the market about 21 days on average. In Nevada, commercial development continued at a fast pace. Hawaii's residential real estate sector maintained a strengthening trend established in late 1998, with increased sales and slower price declines reported. In contrast, some cooling was evident in the housing markets in Oregon, Utah, and Idaho outside of Boise.
Financial Institutions
Demand for bank loans reportedly was strong, and bank credit was readily available. One banker in the state of Washington reported a weakening of credit quality compared to conditions at the end of 1998, but another reported "no discernible problems" there. In Hawaii, although consumer and business loan demand remained weak, mortgage refinancing loans picked up.
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Dallas