View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

January 16, 1976

Western Slump— and Rebound
West of the Continental Divide,
business activity slumped badly in
early 1975, but then began to
recover in the second half of the
year. The recession itself was some­
what shallower in this region than
elsewhere, and for that reason,
Western statistics for 1975 gener­
ally were more respectable that the
Civilian employment inched
slightly ahead of the previous year's
level to 13.3 million, compared to
a slight decline nationally. The
number of jobseekers grew at a
rapid pace, however, so that unem­
ployment soared from 7.2 percent
to 9.6 percent of the civilian labor
force—a full percentage point higher
than the national rate. Still, that
differential narrowed considerably
during the year, reflecting the
relatively greater severity of the
slump in other regions.
Personal income increased about 11
percent in the West to roughly
$208 billion. Indeed, almost all of
the nine Western states recorded
double-digit growth rates, and
Alaska's pipeline boom brought
about a one-third increase in that
state's income in just one year's
time. Inflation of course contin­
ued to eat into income gains, but
the deceleration of the price
trend—along with the tax cut—
permitted a significant improve­
ment in real after-tax income. This
in turn encouraged a revival of
consumer buyingthroughoutthe
region, even more striking than
the sales recovery elsewhere.1

Drop in manufacturing

Because of the steep early '75
slump, manufacturing production
dropped 3 percent for the year.
(That was still considerably better
than the nation's 10-percent
decline.) Yet once the bottom was
reached around midyear, factory
output bounced back in both
durable- and nondurable-goods
The West's crucial aerospace­
manufacturing industry encoun­
tered rough weather during the
year, as its three-year-long
recovery from the post-Vietnam
recession suddenly came to a halt.
Employment in this industry
dropped 6 percent in 1975, and
stood 26 percent below the
Vietnam peak, reflecting a slow­
down of orders for both civilian
aircraft and electronic products.
Domestic and foreign orders for
commercial aircraft dropped off
substantially, as sharply rising fuel
costs and declining passenger
traffic caused the world's airlines to
delay purchases of wide-bodied
and other transports. Industrial
and consumer purchases of civilian
electronic products also lagged
badly during early 1975, but busi­
ness improved substantially in
those categories in the latter part of
the year.
The aerospace decline was cush­
ioned, however, by an upsurge of
orders for military and space
products. Military prime-contact
awards rose almost 24 percent
during fiscal 1975, providing in(continued on page 2)

Opin ions expressed in this newsletter do not
necessarily reflect the views of the management of the
Federal Reserve Bank of San Francisco, nor of the Board
of Governors of the Federal Reserve System.

creased funding for a number of
ongoing missile and aircraft pro­
grams. In the process, the regional
industry's share of the Penta­
gon's total procurement budget
rose from 27 to 29 percent. Spaceagency awards also rose sharply,
primarily for the development of
the space-shuttle program.
Mixed farm results

Western farmers and ranchers
reported a mixed year, with cash
receipts rising modestly to about
$16 billion, but with net farm
income falling slightly because of
continued increases in produc­
tion expenses. Overall, the farm
sector remained on a high and
prosperous plateau, with cash
receipts running twice as high as
in the early 1970's. Much of this
activity could be traced to the
export trade; farm exports from
West Coast ports were about three
times higher than in pre­
devaluation days.
Bumper crop production in many
areas was offset by a declining price
trend, leading to an actual
decline in crop receipts. Cotton
production was off by a third due
to a decline in demand, but wheat
and rice bins were fuller by about
20 percent. Wheat prices, although
rising in the wake of the Russian
wheat sale, still fell sharply below
the $4.52-a-bushel average price of
the previous year.
Livestock producers largely com­
pleted the production cutbacks
they had begun in 1974, under the

spur of high feed prices and
consumer resistance to highpriced beef. The turnaround thus
helped livestock receipts to recover
from their 1974 decline. This shift
went hand in hand with a strong
upturn in beef-cattle prices, which
by fall were 20 percent above the
early-1975 low. Larger supplies and
lower prices of feed grain rein­
forced this improvement in the
livestock picture.
Construction: end of tunnel?

Western construction activity
held up fairly well in 1975, with
new contract awards running
close to the previous year's total of
$18 billion. (Nationally, activity fell
about 4 percent for the year.) The
poorest Western performance was
in "nonbuilding" projects—
highways, dams, and utility
plants—despite Alaska's huge
increase in spending for the oil
pipeline. In housing, new starts
dropped 1 percent below the 1974
level to 276,000 units, but that figure
masked a rising production
trend, since starts roughly doubled
between the winter and fall
The generally low level of housing
activity meant a continuation of
the lumber industry's slump, with
production falling 7 percent for
the year to the lowest level of the
past three decades. Demand
picked up significantly in late year,
however, as the housing upturn
gained momentum and as whole­
salers sought to replenish their

severely depleted inventories.
Consequently, softwood-lumber
prices by December rose 13
percent above the late-1974 low. In
the pulp-and-paper segment of
the industry, where demand closely
parallels national economic
trends, the early part of the year
was very weak but the second half
told a different story.
Weakness in metals

The regional steel industry cut
back production drastically in 1975,
reflecting a decline in
demand and a liquidation of dis­
tributors' excess inventories. Out­
put fell about 17 percent to less
than 6 million tons, the lowest level
in more than a decade. The decline
would have been even worse had
not steel-users reduced their
purchases of foreign steel.
For aluminum producers, the year
was characterized by sluggish
production, excess capacity and
excess inventories. Despite the
late-year improvement in
business, producers had trouble
maintaining a 3-percent price in­
crease announced in August, and
at year-end, all of the potlines shut
down during the earlier slump
remained out of production.
Other nonferrous-metals produc­
ers suffered even more serious
price erosion, as worldwide reduc­
tions in supply failed to bring
markets into balance. Copper
producers scaled back their mine
and smelter production to about


75 percent of capacity by midyear,
but the depressed level of de­
mand in final markets—especially
autos, housing and appliances—
led to a steady buildup of excess
Consumption of petroleum pro­
ducts declined during 1975, as high
prices, conservation efforts and
the economic recession acted to
reduce business and household
demand. Refinery output mean­
while rose about 4 percent above
1974's reduced level, with an
increase in imports more than
offsetting the continued decline
in domestic crude production. In
the process, the proportion of the
regional market supplied by for­
eign oil rose to a record 42 percent.
Refined-product prices at yearend were 15 percent higher than a
year earlier, mostly because of
the rising cost of imported oil.
All things considered, the new year
begins on an upbeat for the Western
economy, despite the continued
weakness of some key regional
industries, and despite the prev­
alence of jobless rates that are even
higher than the national figure.
One strong indicator of future
prosperity is the heavy domestic and
foreign demand for Western
food products and energy
resources. Another hopeful sign is
the completion of the nationwide
inventory adjustment, since West­
ern crude-material producers
should be among the initial benefi­
ciaries of any inventory­
restocking process.
Regional staff

uoiSujqsEM • qein . uoSojo • epeAON • oijepi


E |U J O p |E 3


E U O Z J jy


(Dollar amounts in millions)


Loans (gross, adjusted) and investments*
Loans (gross, adjusted)—total
Security loans
Commercial and industrial
Real estate
Consumer instalment
U.S. Treasury securities
Other securities
Deposits (less cash items)—total*
Demand deposits (adjusted)
U.S. Government deposits
Time deposits—total*
States and political subdivisions
Savings deposits
Other time deposits}:
Large negotiable C D ’s


+ 1,086
+ 945
+ 344
+ 513
+ 188
+ 2,139
+ 1,236
+ 564
+ 273
+ 327

Weekly Averages
of Daily Figures

Week ended

Selected Assets and Liabilities
Large Commercial Banks

Member Bank Reserve Position
Excess Reserves
Net free(+)/Net borrowed (-)
Federal Funds—Seven Large Banks
Interbank Federal fund transactions
Net purchases (+)/Net sales (-)
Transactions of U.S. security dealers
Net loans (+)/Net borrowings (-)



Change from
year ago
+ 2,905
+ 320
+ 4,613
+ 5,432
+ 1,396
+ 3,859
+ 3,963
- 822

Week ended


+ 3.33
+ 3.23
+ 75.12
+ 6.34
+ 5.88
+ 0.0
+ 6.48
+ 21.74
- 4.87

year-ago period




+ 1,339

+ 1,618

+ 1,656







‘ Includes items not shown separately, } Individuals, partnerships and corporations.

Information on this and other publications can be obtained by calling or writing the Public
Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120.
Phone (415) 397-1137.