The Federal Reserve has just released its April Beige Book report, a collection of observations and reports from around the nation. We'll let CNBC worry about the nationwide outlook, and focus on what the 12th District board of governors down in San Francisco has to say about the western economy.
In general, our economy is flat, the Fed says.
- Wages increases are slow - except for "engineers and other highly skilled technical workers in selected manufacturing industries, such as aerospace, and in computer and software services." (That's something we talked about in this week's Economic Insider).
- Manufacturing is a mixed bag, with some sectors (aerospace) reporting production gains while others (forest products) contract.
- Agricultural prices are high, but that windfall is "partly offset by cost increases arising from higher prices for grain, fertilizer, and petroleum-based inputs in general." And something to worry about - a water shortage in Southern California could mean reductions in spring planting there.
- Retail sales in general are soft, but there were gains reported for discount stores and "a surprising degree of strength for luxury goods." On the other hand, car sales - a huge chunk of the retail economy - suffered a "collapse" in March.
- Service sector demand also was mixed, with steady gains in health care offset by sharp contractions in sectors related to real estate (like finance and insurance).
- Another thing to worry about - software sales are down, as is spending on technology in general.
- Residential real estate markets continue to spiral down in California, Nevada and Arizona, and prices in the last remaining pockets of strength - Utah and the Pacific Northwest - "have flattened or begun to fall." Commercial markets are bad to subpar in San Francisco, Las Vegas and San Diego. The report didn't mention our commercial market conditions.
- Finally, banks in the region have severely tightened lending restrictions, the Fed said, making it harder for borrowers. There's been an increase in mortgage refinancing, but very little new mortgage lending. Commercial and industrial lending is mixed across the region, and tending down.
So what's it mean for Washington's CEOs?
- Rising wages for skilled aerospace and technology workers should help sustain retail sales in general around Puget Sound; the luxury segment may benefit a little more than the rest.
- Since Boeing and Microsoft continue to have to import workers to fill those jobs, that means at least some continued population growth. A continued influx of high-wage workers can only be good for the slowing housing industry.
- On the flip side, as wages climb, both Boeing and Microsoft will have further incentive to outsource. And other companies are going to have to increase their wages to keep their skilled workers from jumping ship.
- Layoffs in forest products are bad news in rural communities, particularly those in southwest Washington still trying to recover from last winter's floods.
- A water shortage in California - assuming that it comes to pass - will be good news for Washington fruit growers; shoppers who can't buy oranges will instead buy apples. Likewise, it'll increase demand for Washington vegetables. That should be welcome news to retailers in Yakima and the Tri-Cities.
- But crop shortages in a major production area will also increase consumer prices for all of us.
Finally, there's an interesting nugget buried in the report: "The volume of gasoline sales was reported to be down significantly compared with 12 months earlier."
Seems Adam Gehrke at Q-13 is right - $3.50 gas is getting people out of their cars, and if it's happening in California, birthplace of America's car culture, that's significant. It will be interesting to see how long oil stays at $115 a barrel, given the declining demand.
