Fed sees some signs of bottoming in Western states

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The economy in the Western U.S. is showing some ‘tentative’ signs of stabilization, the Federal Reserve says today in its latest report on regional economic trends.

The Fed’s so-called beige book report, which surveyed its 12 regional banks on economic conditions from late February through early April, found that ‘overall economic activity contracted further or remained weak.’

But the Fed says five of its 12 districts ‘noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.’

The West was one of the five -- although, reading the report, glimmers of hope seem few and far between.

Some still-strong industries, such as aerospace, just appear to be waiting for demand to evaporate. And sales of used SUVs have improved in the West, maybe because desperate sellers are practically giving them away.

As for workers’ situation in Western states, the Fed said that ‘upward wage pressures remained virtually nonexistent overall’ as the jobless rate continued to rise. ‘Contacts in many sectors continued to report that they have frozen or cut wages and reduced benefit costs, for example by increasing employee copayments on medical expenses covered by employer health plans.’

The beige book is based on anecdotal reports from businesses. The latest data are consistent with other evidence suggesting that the economy at least isn’t getting worse at a faster pace -- although another Fed report today, on industrial production in March, paints a much more worrisome picture.

Here are some of the highlights from the beige book’s report on the Western region, which encompasses California as well as Alaska, Arizona, Hawaii, Idaho, Nevada, Oregon, Utah and Washington:

--- Manufacturing: ‘District activity remained weak overall during the survey period. Contacts in the metal fabrication industry continued to report very weak demand and extremely low levels of capacity utilization.’ A relative bright spot: ‘New orders and sales of semiconductors and other information technology products firmed somewhat, causing inventories to fall, but the pace of sales remained well below the level from 12 months earlier.’

Also, the aerospace business reported that production activity ‘continued at high levels, although ongoing reductions in airline passenger and cargo capacity have started to cause order cancellations and delivery deferrals for new aircraft.’

--- Real estate: ‘Housing market conditions remained very weak on net’ in the West, the Fed says. But the report notes that ‘substantial ongoing declines in home prices spurred in part by high rates of foreclosures have combined with low mortgage rates to increase affordability and cause a significant pickup in the pace of home sales in some areas.’

As for commercial real estate, ‘Demand ... continued to deteriorate, with some tenants requesting deferrals of lease payments amidst rising vacancy rates.’

--- Retailing: ‘Sales remained very weak on net, with the exception of inexpensive necessities,’ the Fed says. ‘Department stores and specialized retail stores saw continued dismal sales, with further declines noted in some cases. However, consumers’ focus on necessities, such as food and health products, prompted modest sales gains for some discount chains. Demand remained anemic for furniture, appliances, and electronic items.

‘While demand for new automobiles continued to be feeble, sales strengthened further for used vehicles, especially large pickups and SUVs.’

--- Services: ‘Demand for services fell further since the last survey period. Restaurants throughout the district continued to see their business drop, resulting in more layoffs and closures. Providers of health-care services saw further declines in activity. For providers of professional services such as accounting, business consulting, and legal services, demand continued to decline, and further layoffs were noted.’

The tourism picture remained abysmal: ‘In Hawaii, visitor counts and spending remained down by double-digit amounts from 12 months earlier, and contacts in California and Nevada also reported pronounced ongoing declines in tourist activity.’

--- Banking: ‘Demand for commercial and industrial loans fell further on net; some community banks reported a slight pickup, but the gains were held down by difficulties in securing secondary funding for large loan amounts. Bank lending standards remained very tight, with unusually stringent conditions imposed on many types of loans.’

-- Tom Petruno