Fed report shows deepening recession in Western states

The Federal Reserve’s latest report on regional economic trends is out today, and it’s predictably dismal, given what we already knew about the U.S. economy in December.

The report's chapter on the Fed’s Western region, which encompasses California as well as Alaska, Arizona, Hawaii, Idaho, Nevada, Oregon, Utah and Washington, provides some ugly, ground-level views of the recession out here.

A few of the highlights from the West:

-- Contacts reported little or no upward pressure on wages. With unemployment rising in most areas, companies have seen an increase in the quantity and quality of applicants for open positions, which limits upward wage pressures. Some contacts also reported that they are implementing or considering wage freezes, which employees appear increasingly willing to accept.

-- Several contacts described the holiday spending season as the weakest in memory, although some also noted that early expectations for weak sales helped to keep inventories largely under control. Demand weakened further for electronic items, which had been a bright spot earlier in 2008, and also for furniture and household appliances. Demand for new automobiles continued to languish, although falling gas prices spurred slightly improved sales of larger used vehicles, such as SUVs.

-- Demand for services fell further compared with the previous survey period. Providers of healthcare services reported continued declines in activity. [See this Los Angeles Times story today.] For providers of professional services such as advertising, legal services, accounting, and business consulting, demand continued to fall, and contacts noted concerns regarding the ability of clients to pay.

-- Travel activity declined further: Contacts from Southern California reported that much weaker demand for hotel rooms has followed recent supply expansions that had heightened the competition for bookings; in Hawaii, tourist visits and spending were down by double-digit amounts relative to 12 months earlier, and hotels and related businesses have been laying off staff.

-- Metal fabricators struggled with very weak demand, which reduced capacity utilization to unusually low levels and forced some companies to impose restricted work schedules. Activity continued at high levels for aerospace manufacturers, although contacts cited uncertainty regarding demand for commercial aircraft and national defense products in coming months.

-- Conditions in the commercial office market remained exceptionally weak, with demand for new and existing space reportedly held down by credit market constraints and uncertainty among potential tenants regarding future business conditions. Construction activity was very limited, except for specialty projects such as hospitals and government facilities.

-- Credit quality deteriorated further, and the availability of credit remains quite constrained, with contacts reporting that some banks have withdrawn from entire lending lines. The sole bright spot was an increase in mortgage applications, especially for refinancing conforming home loans, which was spurred by the recent drops in interest rates on such loans.

-- Tom Petruno

Photo: Looking for work at the East Bay Works One-Stop Career Center in Oakland last week. Credit: Justin Sullivan / Getty Images

Comments

[Mark Stephen Ware]

Unfortunately many Western States are being crushed by a bloated budget and lower income tax revenue to pay for it. California is probably at the head of that line.

However, as other states continue to struggle with their local economies, the cure model is essentially the same: give small businesses the breaks they need to survive, invest and expand. That means working aggressively with the schools to mint basically educated kids, provide meaningful tax breaks and collaborate with like-minded organizations such as local chambers and industry groups.

Mark Stephen Ware
CEO & Principal
Perception Lab, Inc.
Management and Marketing Advisors
www.perceptionlab.biz

[James Monachino]

Negative Feed Back Loop - -

The flip side of prosperity, once a deflationary negative feed back loop takes hold it is difficult to stop.

The out of control spending, debt burdens, and declining asset values is similar to a large forest fire burning across the nation. Not sure given the size and scope of the problem that a trillion or so dollars will stop the blaze.

Investments in jobs and infrastructure is a positive start - - but will not provide the total solution. Realignment of our national economy away from a wartime economy into a another direction must occur.

Investments in:
* Science Research
* Outer Space & Ocean Exploration
* Alternative energy
* Improving small business environment for genius, crackpots, and hard working entrepreneurs to swing the bat.
* Creation of a single platform health care delivery program to lift the burden of health care and it's out of control cost off the back of big and small business while providing new jobs and better value for the citizens.
* Universal education of all types to allow a diverse population to follow their passions which eventually will enrich all our lives.

Finally, as a nation we must end this false perception that any bank or business entity is to big to fail. Go back to the roots of this country and continue to foster a decentralized environment that allows a diverse response to the plethora of issues that will challenge us as a nation.

James Monachino