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i FEDERAL RESERVE BANK OF SAN FRANCISCO OFFICE OF THE PRESIDENT A PERSPECTIVE ON THE ECONOMIC OUTLOOK ROBERT T. PARRY PRESIDENT FEDERAL RESERVE BANK OF SAN FRANCISCO THE CITY CLUB OF SAN DIEGO si R e s e r v e B a n k or Ham hm M A R i fi 193/ LIBRARY SAN DIEGO, CALIFORNIA NOVEMBER 25, 1986 1 - Go o d m o r n i n g ladies and - gentlemen . It c e r t a i n l y is a P L E A S U R E TO BE A B L E TO S H A R E SOME T H O U G H T S W I T H Y O U ON THE O U T L O O K FO R TH E E C O N O M Y . BUT I A L S O W A N T TO M E N T I O N A F E W U N C E R T A I N T I E S T H A T ARE C L O U D I N G THE C R Y S T A L BA LL . FINALLY/ I'D L I K E TO M E N T I O N V E R Y B R I E F L Y S O M E OF THE C H A L L E N G E S TO M O N E T A R Y P O L I C Y P R E S E N T E D BY THE E C O N O M I C O U T L O O K A N D B Y THOSE TROUBLING UNCERTAINTIES. AS Un i t e d I'M S U R E M O S T OF Y O U K N O W / E C O N O M I C G R O W T H St a t e s has slowed recently , raising concern IN THE in many Q U A R T E R S T H A T THE C U R R E N T E X P A N S I O N IS C O M I N G TO AN END. After unspectacular growing at an PERCENT RATE DURING acceptable / but 1985/ G R O W T H , 3 IN THE E C O N O M Y ' S O U T P U T HAS S L O W E D TO A 2 . 4 P E R C E N T A N N U A L R A T E SO FAR T H I S YEA R. Ov e r the p a s t y e a r a n d a - h a l f , the U.S. u n e m p l o y m e n t RAT E HAS B E E N S T U C K B E T W E E N 6 3 / 4 A N D 7 1/4 P E R C E N T -S O M E W H A T H I G H E R T H A N THE 6 TO 6 1/2 P E R C E N T T H A T A P P E A R S TO REPRESENT "FULL" EMPLOYMENT IN THE U.S. ECONOMY. - MOREOVER/ 2 CAPACITY UTILIZATION - IN M A N U F A C T U R I N G A C T U A L L Y H AS D E C L I N E D R A T H E R S U B S T A N T I A L L Y . Despite STATISTICS/ these relatively lackluster I BELIEVE THAT A PICK-UP IN THE O F F I N G . O V E R THE N E X T Y E A R / national IN THE U.S. ECONOMY IS I T H I N K T H A T THE U.S. E C O N O M Y W I L L G R O W AT A R O U N D A 3 P E R C E N T R A T E / A N D T H A T SO ME P R O G R E S S W I L L BE M A D E T O W A R D S A C H I E V I N G A F U L L E R E M P L O Y M E N T OF B O T H L A B O R A N D C A P I T A L . The outlook for the U.S. economy N U M B E R OF M A J O R U N C E R T A I N T I E S / And just as these uncertainties is subject to a PERHAPS MORE THAN USUAL. create difficulties for T H O S E OF Y O U M A K I N G B U S I N E S S P L A N S FOR THE C O M I N G Y E A R / they also make the F e d 's j o b o f forecasting economic D E V E L O P M E N T S A N D OF D E S I G N I N G M O N E T A R Y P O L I C Y M O R E DIFFICULT, The Fu n d a m e n t a l s There are two fundamental factors that lead me to my - 3 - F A I R L Y O P T I M I S T I C O U T L O O K FOR THE E C O N O M Y N E X T YEA R . FIRST/ THE I N T E R N A T I O N A L V A L U E OF THE D O L L A R HAS D R O P P E D S U B S T A N T I A L L Y W I T H R E S P E C T TO M A J O R C U R R E N C I E S s i n c e F e b r u a r y of l a s t year. E X P O R T E R S TO C O M P E T E M O R E E F F E C T I V E L Y WHILE FOREIGN PRODUCERS FIND THEIR GOODS AND SERVICES TRADE DEFICIT CONTRIBUTE U.S. This drop enables IN M A R K E T S A B R O A D , IT M O R E D I F F I C U L T TO S E L L IN OU R M A R K E T S . I BELIEVE OUR IS B E G I N N I N G TO I M P R O V E A N D T H A T IT S H O U L D S I G N I F I C A N T L Y TO E C O N O M I C G R O W T H N E X T YE AR . SECOND, INTEREST RATES IN THE U N I T E D S T A T E S HAV E FALLEN SHARPLY THIS YEAR/ C O N T INUING A TREND THAT BEGAN THE L A T T E R H A L F OF S U P P O R T TO THE 1984. LOWER INTEREST RATES PROVIDE INTEREST-SENSITIVE S E C T O R S OF THE E C O N O M Y / I N C L U D I N G S P E N D I N G F OR P L A N T A N D E Q U I P M E N T / DURABLES/ IN AND RESIDENTIAL STRUCTURES. CONSUMER THIS DECLINE IN I N T E R E S T R A T E S H AS B E E N F A C I L I T A T E D A N D E N C O U R A G E D BY Federal Reserve monetary policy . Fo u r times this year / the 4 - D I S C O U N T R A T E HA S B E E N CU T/ PERCENTAGE POINTS, IMPORTANT FACTOR INTO W H A T FOR A T O T A L R E D U C T I O N OF 2 I N T E R E S T R A T E S H A V E B E E N AN IN K E E P I N G THE E C O N O M I C E X P A N S I O N G O I N G IS N O W ITS F O U R T H YE AR , Mo r t g a g e RATES/ LOWER - rates have been a part of PRODUCING SIGNIFICANT EXPANSION S U P P O R T OF L O W E R FAMILY HOUSES the general fall IN H O M E B U I L D I N G . I N T E R E S T R A T E S / C O N S T R U C T I O N OF S I N G L E IN THE U.S. S H O U L D C O N T I N U E AT A H E A L T H Y R A T E T H R O U G H THE E N D OF N E X T YEAR. HOWEVER/ P A S S A G E OF THE T A X R E F O R M B I L L A L R E A D Y HA S B E G U N TO D I S C O U R A G E NEW M U L T I F A M I L Y C O N S T R U C T I O N / A N D I W O U L D NOT BE S U R P R I S E D T O SEE MULTI- F A M I L Y STARTS DOWN SUBSTANTIALLY IN 198 7 C O M P A R E D W I T H T H I S YEAR. The DECLINE IN L O N G - T E R M I N T E R E S T R A T E S HAS N O T Y E T S T I M U L A T E D B U S I N E S S S P E N D I N G FO R C O N S T R U C T I O N A N D EQUIPMENT. CAPACITY/ This in PROBABLY DISLOCATIONS IS A R E S U L T OF L A R G E U N U S E D IN THE O I L A N D GA S INDUSTRIES/ AND 5 - HIGH OFFICE V A C A N C Y RATES, - HOWEVER, I EXPECT MORE ACTIVITY OF T H I S TY P E T H R O U G H O U T T HE C O U N T R Y AS TH E E C O N O M Y B E G I N S TO E X P A N D M O R E R A P I D L Y A N D S A L E S P R O S P E C T S GENERALLY F m OPTIMISTIC. IM P R O V E , B U T MY O P T I M I S M So, IS T E M P E R E D BY S E V E R A L A R E A S OF U N C E R T A I N T Y . Ar e a s o f Un c e r t a i n t y ON E M A J O R U N C E R T A I N T Y IS H O W M U C H OF AN IMPROVEMENT O U R T R A D E D E F I C I T A C T U A L L Y W I L L R E S U L T F R O M THE D E C L I N E THE D O L L A R . IN IN D A T A T H R O U G H THE S E C O N D Q U A R T E R D I D N ' T G I V E A N Y S I G N S T H A T THE T R A D E D E F I C I T H A D B E G U N TO I M P R O V E / E V E N T H O U G H T HE D O L L A R H A D B E E N D E P R E C I A T I N G FO R M O R E T H A N A YEAR. Re c e n t l y released statistics P R O V I D E M O R E R O O M FOR O P T I M I S M . for the third A L T H O U G H THE quarter INCREASE IN E X P O R T S OF G O O D S A N D S E R V I C E S C O N T I N U E D TO F A L L S H O R T OF THE OIL. INCREASE IN I M P O R T S / A G O O D P A R T OF O U R IMPORTS WERE IF WE E X C L U D E O I L I M P O R T S / W H I C H AR E P R I C E D IN 6 - - D O L L A R S A N D T H U S AR E NO T V E R Y R E S P O N S I V E TO E X C H A N G E R A T E S / OU R F O R E I G N B A L A N C E A C T U A L L Y This is encouraging TRADE DEFICIT STILL THE H U G E D R O P One / but we IMPROVED should not IN THE T H I R D Q U A R T E R . forget that our IS FAR L A R G E R T H A N WE E X P E C T E D / GIVEN IN THE D O L L A R , reason for a delayed improvement in the trade B A L A N C E A P P E A R S TO BE T H A T E X C H A N G E R A T E C H A N G E S A R E N ' T B E I N G P A S S E D T H R O U G H TO I M P O R T P R I C E S AS Q U I C K L Y AS T H E Y U S E D TO BE. T HE P R I C E OF IMPORTED GOODS OTHER THAN P E T R O L E U M D I D N ' T P I C K UP S I G N I F I C A N T L Y R E L A T I V E TO D O M E S T I C P R I C E S U N T I L THE S E C O N D Q U A R T E R OF 1986/ M O R E T H A N A Y E A R A F T E R THE D O L L A R B E G A N ITS S H A R P D E P R E C I A T I O N . A S E C O N D R E A S O N FO R T H I S D E L A Y E D IMPROVEMENT IS T H A T THE D O L L A R HA S D R O P P E D A L O T L E S S A G A I N S T THE C U R R E N C I E S OF SOME OF O U R T R A D I N G P A R T N E R S T H A N OTHER PARTNERS/ COUNTRIES. IT HA S A G A I N S T T H O S E OF S U C H AS J A P A N A N D THE M A J O R E U R O P E A N IN SO M E C A S E S THE D O L L A R HAS A C T U A L L Y R I S E N 7 - - A G A I N S T THE C U R R E N C I E S OF SO M E T R A D I N G P A R T N E R S ~ A N D A F E W OF T H E S O - C A L L E D N E W L Y OR N I C S FOR S H O R T . INDUSTRIALIZED COUNTRIES/ THE LARGE DROP HAV E R E A D A B O U T P R O B A B L Y CANADA IN THE D O L L A R WE A L L IS S O M E W H A T O V E R S T A T E D / M O S T OF TH E C O M M O N L Y C I T E D E X C H A N G E - R A T E BECAUSE STATISTICS EXCLUDE NICs. Trade with SIGNIFICANT. these countries THE S I X M O S T has become very I M P O R T A N T NI C s — S O U T H K O R E A / Ho n g K o n g , S i n g a p o r e / T a i w a n , M e x i c o and Br a z i l FOR F U L L Y 3 6 B I L L I O N D O L L A R S OF THE T O T A L U.S. D E F I C I T OF 149 B I L L I O N D O L L A R S IN 1985. T R A D E D E F I C I T S W I T H T H E M M A Y NO T TRADE AND SINCE EXCHANGE RATES WITH THESE COUNTRIES HAVEN'T CHANGED MUCH YEARS/ --a c c o u n t e d IN R E C E N T IMPROVE MUCH IN THE Y E A R AH E A D . Fiscal Po l i c y An o t h e r major FISCAL POLICY. source of uncertainty in the outlook TH E E X T E N T TO W H I C H THE G R A M M - R U D M A N is - 8 - D E F I C I T — R E D U C T I O N L E G I S L A T I O N A C T U A L L Y W I L L L E A D TO L O W E R F E D E R A L S P E N D I N G HAS B E E N A S O U R C E OF S P E C U L A T I O N E C O N O M I C O U T L O O K FOR SOM E TI ME . O V E R S H O T TH E DEFICIT IN THE O n P A P E R , THE C O N G R E S S 144 B I L L I O N D O L L A R G R A M M - R U D M A N T A R G E T FO R THE IN F I S C A L Y E A R 19 8 7 BY THE TE N B I L L I O N D O L L A R S T H A T THE L E G I S L A T I O N A L L O W E D . HOWEVER/ B E C A U S E OF THE B U D G E T A R I T H M E T I C P E R M I T T E D BY T HE L E G I S L A T I O N / D E F I C I T FO R 1987/ L I K E L Y TO R E A C H I N S T E A D OF B E I N G PECULIAR THE A C T U A L 154 B I L L I O N D O L L A R S , IS 180 B I L L I O N D O L L A R S . S T I L L / T H A T W O U L D BE A S U B S T A N T I A L R E D U C T I O N F R O M AN E S T I M A T E D D E F I C I T OF 221 B I L L I O N D O L L A R S FOR F I S C A L 1986. A REDUCTION IN THE D E F I C I T OF T H I S M A G N I T U D E W O U L D G R E A T L Y S L O W THE F E D E R A L G O V E R N M E N T ' S C O N T R I B U T I O N TO E C O N O M I C G R O W T H N E X T Y E A R / O F F S E T T I N G A L A R G E P A R T OF TH E E X P A N S I O N A R Y E F F E C T OF TODAY'S WEAKER DOLLAR AND LOWER Some SLOWDOWN industries could IN G O V E R N M E N T be I N T E R E S T RAT E S . particularly SPENDING. affected FO R E X A M P L E / by DEFENSE the - 9 - C U T B A C K S W I L L L I K E L Y CUT G R O W T H P R O S P E C T S FOR TH E A R E O S P A C E I N D U S T R Y / A L T H O U G H T HE I M P A C T C O U L D BE D E L A Y E D U N T I L OR L A T E R B E C A U S E OF D E F E N S E O R D E R S A L R E A D Y 1988 IN THE P I P E L I N E . B u t / AS W I T H THE T R A D E B A L A N C E / WE FA C E a G O O D M E A S U R E OF U N C E R T A I N T Y A B O U T H O W M U C H THE B U D G E T D E F I C I T R E A L L Y W I L L DECLINE. I D O N ' T T H I N K W E ' L L H A V E A G O O D F I X ON T H A T U N T I L A B O U T THE T I M E WE F I N D O U T THE W I N N E R OF T HE 198 7 W O R L D S E R I E S - - A B I T L A T E FOR F O R E C A S T I N G P U R P O S E S . ON THE R E V E N U E SID E OF THE B U D G E T / THE T A X R E F O R M B I L L A L S O R A I S E S U N C E R T A I N T I E S A B O U T TH E F U T U R E P E R F O R M A N C E OF THE E C O N O M Y . ASIDE F R O M Q U E S T I O N S C O N C E R N I N G THE E F F E C T OF THE T A X C H A N G E ON THE E C O N O M Y ' S L O N G - R U N G R O W T H R A T E / T H E R E ARE M O R E YE AR. IMMEDIATE QUESTIONS CONCERNING The C O S T OF C A P I T A L FOR B U S I N E S S W I L L BE R A I S E D S I G N I F I C A N T L Y BY THE E L I M I N A T I O N OF THE CREDIT/ ITS I M P A C T ON N E X T INVESTMENT TAX THE L E N G T H E N I N G OF S E R V I C E L I V E S F OR D E P R E C I A T I O N / A N D THE E L I M I N A T I O N OF THE T A X A D V A N T A G E S TO L I M I T E D - BUSINESS PARTNERSHIPS. 10 - A L T H O U G H THE R E D U C T I O N C OR PO RA TE TAX RATE WILL PROVIDE SOME OFFSET/ STILL IS L I K E L Y TO BE U N F A V O R A B L E IN THE THE N E T E F F E C T FOR B U S I N E S S INVESTMENT IN 1987. EVENTUALLY/ THIS NEGATIVE E F F E C T ON G R O W T H W I L L T E N D TO BE O F F S E T BY H I G H E R H O U S E H O L D S P E N D I N G LOWER PERSONAL I N C O M E T A X ES . THE T A X R E F O R M S FOR HOWEVER/ IN R E S P O N S E TO B E C A U S E OF TH E W A Y I N D I V I D U A L S ARE P H A S E D - I N O V E R T I M E / THE M A J O R S T I M U L U S TO P E R S O N A L C O N S U M P T I O N P R O B A B L Y W O N ' T COME UNTIL 1988. THUS/ THIS YEAR AND NEXT/ TAX R E F O R M S H O U L D H AV E A NE T N E G A T I V E G R O W T H BY I M P A C T ON C L O S E TO 1/2 P E R C E N T . GNP/ L O W E R I N G R E A L BUT / O N C E A G A I N / IT'S V E R Y D I F F I C U L T TO BE ON S O L I D G R O U N D P R E D I C T I N G TH E E X A C T IM PA CT / MADE G I V E N THE T R E M E N D O U S N U M B E R OF T A X C H A N G E S B E I N G SIMULTANEOUSLY. O il Pr i c e s A F I N A L M A J O R S O U R C E OF U N C E R T A I N T Y A B O U T F U T U R E 11 - ECONOMIC GROWTH IN TH E O I L this year - IS THE E X T E N T A N D D U R A T I O N OF D I S L O C A T I O N I N D U S T R Y C A U S E D BY TH E D R O P , Pr o s p e c t s for some W E R E E N H A N C E D W H E N THE N E W IN TH E P R I C E OF O I L improvement in this area OPEC P R O D U C T I O N Q U O T A S C A U S E D THE P R I C E OF O I L TO J U M P TO T HE 14 TO 16 D O L L A R PE R B A R R E L R A N G E , COMPARED WITH JUST OVER late Ju l y , LEVEL/ If t h e price of 11 D O L L A R S P E R B A R R E L oil THE M A J O R D I S L O C A T I O N S stays at around its IN THE O I L A N D GAS IN present INDUSTRIES P R O B A B L Y ARE B E H I N D US/ A N D WE S H O U L D SEE SOME R E C O V E R Y IN EMPLOYMENT AND CAPITAL SPENDING LATER THIS YEAR AND T H R O U G H O U T N E X T YE AR , O f COURSE/ THIS ASSESSMENT COULD T U R N O U T TO BE O V E R L Y O P T I M I S T I C FOR T H E S E S I N C E THE INDUSTRIES/ OPEC A G R E E M E N T TO L I M I T P R O D U C T I O N IS V E R Y FRAGILE, Un c e r t a i n t y a question about The d r a m a t i c drop about what in the future price will happen to oil prices this of oil also raises inflation next year year caused both , - 12 - C O N S U M E R A N D P R O D U C E R P R I C E S A C T U A L L Y TO F A L L FOR THE F I R S T F O U R M O N T H S OF T H I S Y E A R / A N D S H O U L D H E L P TO K E E P TO A R O U N D 2 1/2 P E R C E N T FOR A L L OF 1986. L O W E S T RA T E OF T H I S W O U L D BE THE GNP D E F L A T O R / I N F L A T I O N / AS M E A S U R E D BY THE REGISTERED SINCE 1967, ALTHOUGH THIS INFLATION IS V E R Y E N C O U R A G I N G WE S H O U L D NO T F O R G E T T H A T / W I T H THE O I L - P R I C E I N F L A T I O N T H I S Y E A R P R O B A B L Y HAS B E E N B E L O W "SHOCK"/ ITS L O N G - R U N / OR U N D E R L Y I N G RATE, Ne x t LEVEL/ PRICES/ year , if t h e price of oil at its present A N D T H U S D O E S NO T P R O V I D E A N O T H E R D O W N W A R D T H R U S T TO THE W E A K E R D O L L A R F E E D I N G T H R O U G H H I G H E R C O S T S OF PRICE MOVEMENTS, IN THE F O R M OF I M P O R T S W I L L BE THE D O M I N A N T I N F L U E N C E ON In T H I S C A S E / I N F L A T I O N C O U L D R I S E B Y AS M U C H AS A F U L L P E R C E N T A G E P O I N T O V E R I N C R E A S E T H I S YEA R, ITS E X P E C T E D R A T E OF H O W E V E R / A C O L L A P S € OF THE R E C E N T A G R E E M E N T AND C O N S E Q U E N T FALL stays IN O I L P R I C E S A G A I N C O U L D OPEC - 13 PUSH INFLATION BELOW ITS U N D E R L Y I N G R A T E N E X T YE AR. A L O N G W I T H A L O T OF OI L / OPEC S U P P L I E S US W I T H A L O T OF " i F S " FOR O U R INFLATION FORECAST. Ch a ll e n g e s Mo n e t a r y These BALANCE/ to Po l i c y uncertainties FISCAL POLICY/ in the — outlook AND OIL PRICES ~ F O R M I D A B L E C H A L L E N G E S FO R M O N E T A R Y P O L I C Y . F A I L U R E TO S H O W C L E A R S I G N S OF S U S T A I N E D / MAKES $0, IT T E M P T I N G TO A R G U E T H A T / the trade PROVIDE THE E C O N O M Y ' S HEALTHY GROWTH/ FOR S A F E T Y ' S SA K E / MONETARY POLICY SHOULD LEAN FURTHER TOWARD BOOSTING PRODUCTION. Current statistics, guide. however, c a n be a m i s l e a d i n g It t a k e s t i m e for the e f f e c t s of m o n e t a r y p o l i c y to W O R K T H E I R W A Y T H R O U G H THE E C O N O M Y . EVEN FURTHER/ T H E R E AR E L A G S COMPLICATING MATTERS IN R E C E I V I N G R E L I A B L E D A T A ON W H A T A C T U A L L Y HA S H A P P E N E D TO I M P O R T A N T REAL GNP A N D THE B A L A N C E OF T R A D E . I N D I C A T O R S S U C H AS S O M E T I M E S WE D O N ' T - 14 - REALLY KNOW WHERE WE'VE BEEN UNTIL WE'RE ALREADY SOMEWHERE else . G iven these LOWERING OF AN difficulties , a p o l i c y of INTEREST RATES UNTIL THERE continually IS U N A M B I G U O U S E V I D E N C E I M P A C T ON THE E C O N O M Y R U N S A R E A L R I S K " POLICY A RISK THAT INA D V E R T E N T L Y WIL L BECOME TOO S T I MU LA TI VE , THE S P E C T E R OF R E E M E R G I N G By MY C A L CULATIONS, RAISING INFLATIONARY PRESSURES, THE E A S I N G OF M O N E T A R Y P O L I C Y O V E R THE P A S T Y E A R S H O U L D BE C O N S I S T E N T W I T H THE E C O N O M Y G R O W I N G AT A H E A L T H Y , TH I S O U T L O O K SUSTAINABLE PAC E N E X T YE AR, BUT ALTHOUGH IS A P P E A L I N G , WE M U S T R E C O G N I Z E T H A T W I T H THE E C O N O M Y P O I S E D TO M O V E T O W A R D A F U L L E R U T I L I Z A T I O N OF RESOURCES, This ITS INFLATIONARY PRESSURES COULD RE-EMERGE, inflationary risk is heightened in my mind by THE R E C E N T B E H A V I O R OF THE M O N E T A R Y A G G R E G A T E S , W H I C H WE AT THE F e d USE AS policy . The b r o a d e r ARE N E A R t h e I N D I C A T O R S OF THE F U T U R E monetary aggregates I M P A C T OF M O N E T A R Y , M 2 a n d M3, b o t h U P P E R B O U N D A R I E S OF T H E I R T A R G E T R A N G E S T H I S 15 - - YEAR. Th u s , a l t h o u g h Fe d e r a l Re s e r v e Po l i c y a c t i o n s must R E F L E C T C O N C E R N A B O U T THE C U R R E N T S L U G G I S H N E S S OF TH E E C O N O M Y , WE M U S T B A L A N C E T H I S C O N C E R N A G A I N S T THE R I S K T H A T TO O M U C H E A S E M I G H T L E A D TO P R O B L E M S W I T H Y E A R S TO COME, TH E F e d c a n do BALANCING THESE CONCERNS our job best — INFLATION IN THE IS THE W A Y WE AT PROMOTING s u s t a i n a b l e ECONOMIC GROWTH, WHILE ENSURING THAT CONTINUED PROGRESS MADE TOWARD PRICE STABILITY, IS - 16 - O V E R V I E W OF TH E $ A N P l E G O E C O N O M Y In S a n D i e g o , e c o n o m i c g r o w t h as m e a s u r e d by E M P L O Y M E N T A N D U N E M P L O Y M E N T A P P E A R S TO H A V E A C C E L E R A T E D D U R I N G TH E C O U R S E OF THE P A S T YEA R. YEAR-OVER-YEAR E M P L O Y M E N T G R O W T H / W H I C H B E G A N THE Y E A R AT A R E L A T I V E L Y R O B U S T 3 . 9 P E R C E N T , W A S E V E N H I G H E R T H R O U G H M O S T OF THE SECOND AND THIRD QUARTERS/ AND REGISTERED 6.6 PERCENT Se p t e m b e r . year Th r o u g h o u t the SIGNIFICANTLY FASTER THAN THAT NATION. MOREOVER/ Diego continues UNEMPLOYMENT/ ADJUSTED) FAR D U R I N G to DESPITE / employment growth IN has IN E I T H E R TH E S T A T E OR THE ITS R A P I D P O P U L A T I O N G R O W T H / experience been relatively AS THE U N E M P L O Y M E N T R A T E HA S F L U C T U A T E D B E T W E E N $AN little (NOT S E A S O N A L L Y 4. 5 A N D 6 . 0 P E R C E N T T H U S In S E P T E M B E R / S A N D l E G O R E G I S T E R E D A 4. 6 1986. P E R C E N T U N E M P L O Y M E N T R A T E / C O N S I D E R A B L Y B E L O W THE S T A T E ' S 6. 2 P E R C E N T R A T E A N D S A N D l E G O ' s Y E A R - E A R L I E R 5. 5 P E R C E N T LE VEL. St r e n g t h in trade and services has more than offset 17 - WEAKNESS - IN M O S T M A N U F A C T U R I N G S E C T O R S . EMPLOYMENT GROWTH IN TH E T R A D E A N D S E R V I C E S E C T O R S C U R R E N T L Y HIGHER THAN IS O V E R A L L E M P L O Y M E N T G R O W T H To u r i s m has provided Ja n u a r y through a Au g u s t boost to the period , airport IS C O N S I D E R A B L Y IN S A N Dl EGO. area 's e c o n o m y . traffic Fo r / border CR OS SINGS/ AND SEA W O R L D A T T E NDA NC E ALL G R E W MORE THAN 10 P E R C E N T F R O M L A S T Y E A R ' S L E V E L D U R I N G THE S A M E P E R I O D . San D iego W ild An i m a l park MORE MODEST ATTENDANCE RESPECTIVELY. PERCENT THAN and the the THE San D iego Zoo r e g i s t e r e d I N C R E A S E S OF 9.1 A N D 5 . 3 P E R C E N T S A N D l E G O ' s H O T E L O C C U P A N C Y RA T E / AT 7 4 . 1 (CUMULATIVE YEAR-TO-DATE THROUGH AUGUST), WAS LOWER IT W A S D U R I N G THE SA M E P E R I O D L A S T Y E A R B U T THE A V E R A G E D A I L Y R O O M R AT E OF $ 7 0 . 1 7 W A S 4.5 P E R C E N T H I G H E R . Through of residential Co u n t y was the first nine construction 7 percent higher months the permits issued than was P E R I O D L A S T Y E A R / A G R O W T H RA T E of it year in during , the number Sa n D i e g o the same I D E N T I C A L TO C A L I F O R N I A ' S . 18 - Ho w e v e r / in Sa n D i e g o single - family construction was SOMEWHAT WEAKER AND MULTIFAMILY CONSTRUCTION SOMEWHAT STRONGER THAN IT W A S S T A T E W I D E . PERMITS THROUGH SEPTEMBER WERE D iego than they were last G R O W T H FOR C A L I F O R N I A . CUMULATIVE SINGLE-FAMILY 18 P E R C E N T H I G H E R year , compared with IN S A N 21 p e r c e n t O n THE O T H E R HA N D , W H I L E STATEWIDE THE N U M B E R OF M U L T I F A M I L Y P E R M I T S FOR THE F I R S T N I N E M O N T H S OF 1986 FELL 2 P E R C E N T B E L O W N U M B E R OF M U L T I F A M I L Y P E R M I T S ITS Y E A R - E A R L I E R L E V E L , THE IN S A N D l E G O R O S E 2 P E R C E N T D U R I N G T HE SA M E P E R I O D . N O N R E S I D E N T I A L C O N S T R U C T I O N A C T I V I T Y HAS S L O W E D RECENT MONTHS, the San A N D TH E P A C E OF N O N R E S I D E N T I A L B U I L D I N G D iego area has fallen off more NONRESIDENTIAL CONSTRUCTION STATEWIDE. than IN IN has TH E V A L U E OF N O N R E S I D E N T I A L A W A R D S FOR THE F I R S T NI N E M O N T H S OF THE Y E A R WAS 15 P E R C E N T B E L O W L A S T Y E A R ' S L E V E L IN S A N D l E G O , A S I G N I F I C A N T L Y L A R G E R D E C L I N E T H A N THE 6 . 5 P E R C E N T R E G I S T E R E D - STATEWIDE. 19 - A W A R D S FOR O F F I C E B U I L D I N G S F E L L 28 P E R C E N T Sa n D i e g o d u r i n g the same D E C L I N E FOR THE S T A T E . period , compared BE P A R T I C U L A R L Y P R O N O U N C E D Ev e n S e p t e m b e r 's o f f i c e so provide SPACE, than 24 p e r c e n t BUT THAT TREND MAY IN S U B U R B A N S A N D l E G O C O U N T Y , vacancy , S a n D i e g o 's r e l a t i v e l y greater a SAN DlEGO OFFICE BUILDING PROBABLY W I L L F O L L O W THE N A T I O N A L S L O W I N G T R E N D , where with IN average rate registered strong economy absorption A N D AS A R E S U L T THE S L O W D O W N L I K E L Y TO BE L E S S P E R S I S T E N T T H A N for 28 p e r c e n t . should existing office IN O F F I C E B U I L D I N G IS IN M O R E E C O N O M I C A L L Y TROUBLED REGIONS. In d u s t r i a l and SIGNIFICANTLY WEAKER state . The v a l u e of retail building activity IN S A N D l E G O T H E N T H E Y ARE Sa n Diego area industrial A W A R D S T H R O U G H THE F I R S T N I N E M O N T H S OF LOWER THAN to be IN THE building 1 98 6 W A S 40 P E R C E N T IT W A S L A S T Y E A R , C O M P A R E D TO A 7 P E R C E N T D E C L I N E FOR THE STA TE . appear DESPITE REGIONAL STRENGTH IN R E T A I L S A L E S , 20 - - A R E A R E T A I L B U I L D I N G T H R O U G H THE F I R S T N I N E M O N T H S OF THE Y E A R F E L L BY 17 P E R C E N T F R O M cry ITS Y E A R - E A R L I E R L E V E L / A FAR C a l i f o r n i a 's 20 p e r c e n t from growth during the same PE R I O D . In t e r n a t i o n a l D istrict show M O N T H S OF that trade total San D iego Cu s t o m s the activity for the first nine IT W A S FOR THE As T O T A L V O L U M E HAS G R O W N / THE M I X I M P O R T S A N D E X P O R T S H AS C H A N G E D . NI N E M O N T H S OF 1986/ THAN trade from 19 8 6 W A S 9 P E R C E N T G R E A T E R T H A N SA M E P E R I O D L A S T YEAR. BETWEEN data D U R I N G THE F I R S T IMPORT VOL UM E WAS 22 PERCENT GREATER IT W A S D U R I N G THE S A M E P E R I O D L A S T Y E A R / BU T THE V O L U M E OF E X P O R T S F E L L 5 P E R C E N T . W H I L E THE G R O W T H OF IMPORTS R E L A T I V E TO E X P O R T S HAS S L O W E D N A T I O N A L L Y D U R I N G TH E P A S T FEW M O N T H S / SEPTEMBER/ in NO S U C H S L O W I N G IN S A N D l E G O . I M P O R T V O L U M E W A S 25 P E R C E N T H I G H E R T H A T Se p t e m b e r 1985/ w h i l e OV E R THE SA ME YEA R. IS A P P A R E N T export volume shrank In IT W A S 29 p e r c e n t
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