The recession bears down on California and the West
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The Federal Reserve’s latest survey of U.S. economic conditions paints a grim picture, as expected.
Here are some of the survey highlights from the Fed’s San Francisco branch, covering January and February conditions in California as well as Alaska, Arizona, Hawaii, Idaho, Nevada, Oregon, Utah and Washington:
-- Deflationary winds are a-blowin’: ‘Upward pressures on prices eased further’ in the Western states, the Fed said. ‘Declining demand reduced sellers’ pricing power in many sectors, and price discounts deepened for assorted retail items. Prices declined further for energy and many commodities, including various construction materials and food products.
‘New automobile sales, both domestic and foreign, remained feeble, but sales and prices stayed relatively firm for used vehicles.’
As for wages, ‘Upward pressures remained modest to nonexistent on net. Hiring freezes and restricted work schedules have become commonplace, and unemployment rose significantly throughout the Western district. Compensation increases were very limited in general: Many employers have frozen or cut wages, eliminated incentive pay, or reduced benefit costs, for example through the elimination of 401(k) matching programs. Reports indicate that some companies that have not yet reduced workforces or cut compensation costs plan to do so soon.’
-- Consumers cut back further on spending for services: ‘Demand for services continued to decline since the last survey period,’ the Fed said. ‘Contacts in the restaurant and food services industry noted sharp sales declines accompanied by growing layoffs and closures. Providers of health-care services saw further drops in patient volumes, attributed largely to postponement of elective procedures and cutbacks in government-funded medical programs.
‘Demand weakened significantly for providers of professional services such as accounting, business consulting, and legal services, with ongoing layoffs noted. Travel activity in the district fell further, and airlines responded by reducing passenger capacity. In Hawaii, sharp ongoing declines in visitor arrivals caused further layoffs at hotels and resorts, and contacts in Southern California reported growing cancellations of corporate travel commitments.’
-- Manufacturing mostly slides, with a few exceptions: ‘Producers of wood products, transportation equipment, and construction equipment saw further declines in demand. New orders and sales of semiconductors and other information technology products continued to fall, causing layoffs and further reductions in capacity utilization for many firms. Contacts in the metal fabrication industry reported very weak demand and capacity utilization rates in the range of 25% to 50%.
‘Aerospace manufacturers continued to produce commercial aircraft at a brisk clip, but reductions in airline capacity have weakened the outlook for new orders going forward, and orders for small corporate jets have dropped significantly of late. Food manufacturers remained a bright spot, seeing strong demand overall as growing sales to grocery stores more than offset declining sales to restaurants.’
-- Commercial real estate woes deepen: ‘Activity in the district’s housing markets remained mired at very low levels, and considerable demand declines were reported for commercial real estate. The pace of home sales stayed very slow in most areas, despite some pickup in recent months as price declines have increased affordability, and construction of new homes was limited.
‘Conditions in the commercial office market deteriorated noticeably, as leasing activity slowed further and vacancy rates continued to rise. Contacts reported that restricted credit availability has held down construction activity in both sectors of late. Construction projects funded by state and local governments fell further during the survey period as a result of budgetary constraints.’
-- Tom Petruno