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February 3/ 1984
Brighter Western Economy
The economy of the western United States,
although slow to begin its recovery, grew
with increased vigor as 1983 progressed. In
keeping with the national pattern, gains in
employment first came mainly from a turnaround in the demand for interest-sensitive
spending, particularly housing. All nine
western states, for example, experienced a
sharp increase over 1982 in the number of
residential construction permits issued. This
was true even after the slowdown in homebuilding activity in the second half of 1983.
For the year, the total number of housing
starts in the West was nearly double the
1982 figure.
Rising COnsumerspending also provided a
major stimulus for the regional economic
recovery as consumers sharply increased
theiroutlays for all retail goods and services,
but especially for automobiles, appliances
and other durable goods.
Employment gains
One key indicator of the strength of the
West's recovery was a 4.3 percent rate of
employment growth over the course of the
year, surpassing the nation's performance.
Among the western states, Arizona was the
star performer with employment growth of
just over 8 percent, but employment in
Nevada, Washington, Idaho, Utah and California also grew faster than the national
average (Chart 1). As a result, nearly all
of those states-which began the recovery
with unemployment rates higher than the
nation/s-experienced a larger absolute
decline in their unemployment rates than
the nation as a whole. Utah was an exception because of the high growth of its labor
force. Only in Hawaii, Oregon and Alaska
was employment growth over the course of
1983 below the national average. Oregon's
poor performance was due to the renewed
weakness which developed in national
homebuilding and related industriesespecially lumber-in the second half of
1983. Hawaii showed signs of significant
improvement late in the year. As of
December 1983/ the unemployment ra"tes
in
Arizona and California had dropped well
below the national average, while in Utah
and Hawaii, the unemployment rates
remained below the national average
throughout the 1981-82 recession and
subsequent recovery (Chart 2).
Recovery's progress
The states in the Pacific Northwest were
among the first to bounce back from the
recession as the turnaround in national
housing boosted employment in local
construction, lumber and other housingrelated industries. This early strength
provided a major impetus to the recovery
throughout the West although the slowdown in western and national housing
activity, which began after August,
adversely affected Oregon's economy.
In the second quarter of 1983, the manufacturing sector began to revive as the
recovery started to boost employment in
basic materials industries such as chemicals
and paper, and to spread to capital goods
industries such as non-electrical machinery.
At the same time business capital spending
began to revive, the demand for consumer
durables continued to pick-up, spurring
employment in both retail trade and automobile manufacturing. The rise in personal
income throughout the nation spurred
tourism in the West, particularly in Hawaii.
This growth in visitor expenditures, along
with increased defense spending, helped to
lower that state's unemployment rate which,
despite an increase in 1982 and early 1983,
was already the lowest in the region.
The aerospace and electronics industries
became major sources of strength to the
regional economy as 1983 progressed.
Becausethe West is home to numerous mi Iitary bases and many of the nation's leading
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expressed in this ni:'\vslettE'r do not
reflect the vi:.:'vv,::,cd: the i11dr1agemenl
01 the
Bank o! Sail Fral'1dsco,
or of the Board of C:;overnors of thC', Federa.l
SvstelTl.
As a result, western producers of those
metals-located
mainly in the Intermountain states-have been confronted
with extremely low prices and were forced
in 1983 to operate at close to the low levels
of capacity utilization reached during the
1981-82 recession.
aerospace and electronic equipment manufacturing firms, the region benefitted
throughout the year from the higher level
of federal government defense spending. In
Hawaii, this stimulus took the form of
increased expenditures for military payrolls
and local purchases, Other statesincluding California, Washington, Arizona
and Utah -experienced an increase in the
federal government's demand for aerospace
equipment, including aircraft, missiles and
'space vehicles, and electronic products.
In the case of gold and silver, although
the demand for consumption purposes
increased, speculative demand weakened
because of the reduction in the U.S. inflation
rate. As a result, prices for these metals fell
sharply in 1983. All these influences acted
.to reduce metal mining and processing
industry employment in Arizona, Utah,
Nevada and Idaho. The Pacific Northwest
aluminum industry is the only metal industry
to have experienced a significant increase
in prices and operating rates, and that improvement came after mid-year.
Employment in the aerospace and electronics industries accelerated in the second
quarter of 1983, when business demand for
electronic products picked up. Between
April and December, the huge California
aerospace-electronics complex added
23,000 workers to its payrolls, for example.
The only exception was in Washington
where the aerospace equipment industry
reduced its payrolls by about 9,500 over
the year. But the indusli'y "2ceived a heavy
inflow of new commercial aircraft orders
after mid-year that began to arrest the
decline in commercial order backlogs. As a
result, at year-end, industry officials there
were optimistic that continued gains in
defense business would combine with
growing commercial aircraft orders from the
world's airlines not only to halt the aerospace industry layoffs that had been underway in that state since 1981, but to lead
to increased hirings in 1984.
Abundant supplies and relatively low prices
for energy products reduced coal production and synthetic fuel development in Utah,
while opposition to the construction of
nuclear plants continued to depress
uranium mining in that state. Cutbacks in oil
drilling and exploration activity, caused by
a drop in the world price of oil, hurt Alaska
which also suffered from weakness in logging and fish processing industries.
The West's key agriculture sector also failed
to experience a significant improvement in
net income after several consecutive years
of decline. Heavy rains and flooding at
various times throughout the year seriously
damaged crops, particularly in California
and Utah. The federal government's
payment-in-kind program also reduced the
acreage of wheat, corn, rice and cotton
planted. In fact, in California, farm production dropped 11 percent in 1983 to around
47 million tons, the smallest harvest
since 1978.
Persistent weaknesses
Despite the general strength of the region's
recovery, some sectors showed unusual or
persistent weakness. The'mining sector, and
related primary and fabricated metals manufacturing industries, for example, comprise
an important area of the Twelfth District
economy thatforthe most part still has failed
to experience sign iflcant recovery. Although
the nation's automobile, housing and appliance manufacturers have increased their
consumption of copper, lead and zinc,
foreign producers have been boosting
production in excess of worldwide demand.
These weather-related and governmentinduced production cutbacks helped to
push prices forfruits, vegetables, cotton and
2
grains above levels a year ago-but not high
enough to offset lower production. Agricultural exports of both crops and livestock
products also fell off due to the strong
foreign exchange value of the dollar and
weak global economies. As a result, farm
cash receipts throughout the West declined
in 1983, with the decline in California
estimated at around 4 percent. Net farm
income probably rose slightly above the
level of a year earlier, but this increase was
due to lower energy, interest and other
operating costsand.not to increased farm
receipts. The continued weakness in the
mining and agricultural sectors kept western
rural communities depressed in comparison
with metropolitan areas as 1983 drew to
a close.
ience improvement. Producers of grains and
cotton shou Id benefit from high demand and
rising prices as a result of the Midwestern
drought and last year's inventory reduction.
Demand and prices for fru its and vegetable
crops shou ld be up as a resuIt of the losses
sustained elsewhere in this Winter's freezes.
Exports of agricultural products also may
rise as foreign economies strengthen.
The huge increase in housing starts last year
promises to make homebuilding less of a
stimulus in 1984. Nevertheless, the sharp
increase inresidential building permits
issued in the West in December of last year,
as well as such factors as strong pent-up
demand, rising incomes and the availability
of a variety of mortgage instruments, suggests that housing starts in the West
could rise moderately in 1984 and outperform the national pattern. Some further
increase in western and national homebuilding activity this year will be a
fu ndamentalrequ i rement for Oregon's
further economic recovery because of its
heavy dependence on the lumber industry.
Prospects for significant recovery in the
West's metal and energy mining operations
are not promising given the likelihood of
continued worldwide surplus supplies. On
balance, however, the West should do at
least as well as the nation in 1984.
Theoutlook
Further growth seems assured for the western economy in 1984. Increased defense
and business capital spending should
increase employment in the West's capital
goods industries as well as those related
to industrial and commercial construction.
Further boosts in consumption expenditures
as disposable income continues to rise
should help the retail trade, service and
tourist-related industries.
The farm sector, and related food processi ng
and supplying industries, should also exper-
Yvonne Levy
Growth of Employment
Percent
8 .... -
-
-
-
6 ..... -
-
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-
-
UnemploymentRates
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• Latest
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.. December
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• December
1982-December
1983
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BANKING DATA-TWELFTH FEDERAL
RESERVE
DISTRICT
(Dollaramounts
'in',inillions)
, Amount
Selected
Assets Liabilities"
and
Large Commercial
Banks
Outstanding
1/18/84
loans,Leases Investments1,
and
174,389
1-,5
toans"andLeas'es
',153,942
Commerdaf'and
Industrial
45,098
Real state
e
58,904
loans to Individlials
26,590
5,050
Le'ases
,
,,', ',,'
'
2
U.S. Treasuryand Agency Securities
12,274
Other Securities2
8,173
TotalDeposits
184,502
43,194
Demand Deposits" " '
,
.Demand
AdJustecJ3 29,315
OtherTransaction.BaJanceS4
12,069
TotalNon:'Transactiori alances
B
129,239
Money,Market Deposit
Accot.ints"-'-,-Tcital
.
39,636
Time DepositS'ii' AITiou'nts
i
. '... 38,3'30
" :, $100,000or more ' ,
Other liabilities for'Borrowed
McineY;
20,923
Weekly Averages
Weekended
of 'Daily
Figures
1/18/84
ot
Change
Change
from
from
year ago
. Dollar
Percent
1/11/84
460
259
119
83
6
5
204
1,525
2,655
369
833
1,963
248
929
3
-
0,9
1.8
0.8
lA
7.9
4]
8,2
NA
"":'2;'317
-1,955
-2,349
-' 349
13
NA
4,012
2,324
2.2
5]
NA
NA
' NA
NA
NA
NA
NA
56
10,960
22,2
87
4,579
18,0
2,463
Comparable
"
Weekended
period
1/11/84
MemberBankReserve
Position
ExcessReserves ){Oeficiency '(-),.
8qrrowings ,
_"
'
,,,,,, '.
Net free reserves )/Net
(+
.1
69
22
47
386
56
330
393
°
393
InCludes 'reselves,
.'i)S5
uneanled
,rncome;
excludes
interba'nk
loans
Excludes'trading <iccount securities:.,
'_"
,"
"
', '
3 ExcludesU.s: governmentanddepository,institutiondepositsand cash
items
2
ATS,.
NOW'and
accounts telephone
with
transfers
Includesborrowingvia FRS, &l notes; funds, RPs othersources
n
Fed
and
6 Includes
itemsnotShown'
sepa'rately , ,
Editorial'comments beaddressed the
may
to
'(GregoryTong)or'tothe-author
•••• Free
copies
of
FederalReserve
publications. be obtainedfrom the PublicInformationSection,
can
Federal
Reserve
Bankof SanFrancisco,
.7702,SanFrancis«70
Phone
(415)
4
5
@FedFRASER