Western Economic Developments
March 1997
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- Recently revised payroll employment figures indicate that District
nonagricultural payroll employment expanded by 3.4 percent in 1996,
well ahead of the national pace.
- The District currently contains five of the eight fastest growing
states in the nation, including Nevada, Arizona, Utah, Idaho, and Oregon.
The California and Washington economies are also growing at a brisk
pace.
- Rapid expansion in the construction, manufacturing, trade, and services
sectors accounted for much of the employment growth during 1996. Manufacturing
activity in the District is well above the national pace, largely due
to strong growth in high-tech manufacturing and the resurgence of Boeing.
- The California recovery accelerated in 1996, as the San Francisco
Bay Area benefitted from robust growth in high-tech manufacturing and
business and engineering-management services. The pace of growth in
Los Angeles County continues to lag other areas of the state.
- Fourth-quarter earnings at District banks were good, and overall
asset quality is fairly healthy. However, loan performance is showing
some deterioration in the consumer and real estate categories.
The 12th District economy exhibited strong growth in 1996 and continued
to expand at a rapid pace in 1997. Recently revised figures indicate that
District nonagricultural payroll employment expanded by 3.4 percent in
1996, and that only Alaska and Hawaii recorded employment growth below
the national pace of 2-1/2 percent. The District currently contains five
of the eight fastest growing states (Nevada, Arizona, Utah, Idaho, and
Oregon), and accelerating growth in Washington and California is moving
them up in the ranking.
In California, state payroll employment grew by 3 percent in 1996, and
there was a significant acceleration in job growth in the San Francisco
Bay Area. Employment gains in the Bay Area were largest in high-tech manufacturing
and business and engineering-management services. In Washington, Boeing's
resurgence boosted manufacturing employment growth to 6-1/2 percent in
1996 and placed manufacturing beside computer and data services as one
of the primary job creating sectors in the state. Despite slowing slightly
in January, growth in California and Washington is expected to continue
to be strong in 1997.
Among other District states, Nevada recorded the strongest pace of employment
growth, 7.7 percent over 1996, ranking it first in the nation in payroll
employment growth. Despite slowing in the fourth quarter, employment in
Arizona grew by 5.4 percent in 1996, the same pace as in 1995. Oregon
also maintained a fast pace of growth in 1996. Idaho and Utah slowed slightly
over their rapid pace the previous year, but employment in both states
continued to grow substantially faster than the nation. Both Hawaii and
Alaska remained sluggish in 1996. Alaska did expand, but by less than
one percent. Hawaii lost jobs in 1996.
Severe weather throughout much of the District at the beginning of 1997
appears to have hampered employment growth in January, particularly in
California, the Intermountain States, and the Pacific Northwest. District
employment in January increased by just 1.6 percent at an annual rate,
well below its pace in previous months. Some sectors, such as construction,
mining, services and transportation expanded during the month, but manufacturing
and trade fell off slightly. Despite the slow start, the District's prospects
in 1997 look bright. Manufacturing employment growth in the District has
continued to outpace the nation, and the boom in business services continues
in many District states.
Fourth-quarter earnings for banks headquartered in all states in the
District except California were good, with banks reporting healthy return
on assets (ROA) and return on equity (ROE). Costs associated with recent
large bank mergers and associated consolidation depressed the California
figures; abstracting from these influences, California-headquartered banks
also reported healthy average fourth-quarter earnings. Fourth-quarter
profitability at small banks in California, although still relatively
weak, was higher than a year earlier.
Fourth-quarter overall asset quality for most banks in the District
was fairly healthy, but many states average past-due loan ratios exceeded
those seen in the nation as a whole. Only banks headquartered in California,
Oregon, and Washington showed ratios of past-due loans to total loans
below the national average. Moreover, even banks headquartered in Oregon
and Washington saw year-over-year increases in their average past-due
ratios, to levels not seen in those states since 1993 and 1994, respectively.
The performance of loans to individuals continues to be relatively poor
for banks headquartered in several District states. In Idaho, Nevada,
Arizona, and Hawaii, average past-due consumer loan ratios surpassed the
already high national average in the fourth quarter. Banks headquartered
in Alaska, California, Oregon, Utah, and Washington reported average past-due
consumer loans below the national average, but only banks headquartered
in Utah reported a decline from their own year-end 1995 levels.
Banks headquartered throughout the District are showing some weakness
in real estate loan performance. Banks headquartered in every District
state reported fourth-quarter average past-due ratios for various types
of real estate loans that were higher than they had been since at least
the fall of 1994. For the most part, these ratios remained below or comparable
to national averages. However, banks headquartered in Hawaii and Nevada
showed notably higher average past-due ratios for multifamily residential
loans than those seen in the country as a whole in the fourth quarter.
Hawaii banks' past-due ratios for real estate construction loans and one-to-four-family
residential loans also exceeded national averages.
Revisions to California Employment Data
Summary
Revised employment data indicate that there was more job growth in California
than previously estimated, boosting employment growth to 3 percent in
1996. High-tech manufacturing and business and engineering-management
services accounted for most of the uncounted jobs. Within the state, employment
was underestimated in the San Francisco Bay Area and overestimated in
Los Angeles County. Overall, the revised data confirm that most regions
of California strengthened in 1996, although the Los Angeles County economy
continued to lag.
Annual Benchmark Revisions
Each year the sample-based monthly Current Employment Survey (CES) is
benchmarked to relatively comprehensive employment counts available from
unemployment insurance (UI) tax records. These benchmarks tend to involve
upward revisions when job growth occurs at newly formed firms which are
under represented in the CES sample but captured in the UI system. The
annual adjustment, which occurs with a one-year lag, matches the March
CES employment levels to UI administrative records. Employment levels
for subsequent months are obtained by applying CES estimates of monthly
employment changes to the revised March base.
Effects of 1996 Benchmarking on California Employment Data
Revised data show that nonagricultural payroll employment in California
grew by 3 percent in 1996, up from initial estimates of 2.6 percent annual
growth, and well above the 2.3 percent growth rate recorded in 1995. The
newly benchmarked figures indicate that non-farm payrolls expanded by
358,500 jobs between December 1995 and December 1996. Job gains during
1996 were largest in services (up 186,400 jobs), trade (up 61,500 jobs)
and manufacturing (up 47,000) jobs, but even the weakened finance, insurance,
and real estate sector rebounded to post an increase of 2,700 jobs over
the year. Only mining remained below year ago levels.
By Industry. The current estimates show a 52,600 job net upward
revision to the year-end estimated level of California total employment
(Table 1). By one-digit industry classifications, this net increase combines
84,800 undercounted jobs in some industry groups with 32,200 overcounted
jobs in other industry groups. Manufacturing employment was revised up
39,600 jobs, and 37,600 jobs were added to the services sector tally.
Within manufacturing the largest upward revisions were at producers of
durables such as computer equipment and other industrial machinery, electronic
equipment and components, and instruments. Taken together, the upward
revisions in these primarily high-tech manufacturing industries accounted
for one-quarter of the gross upward revision to California employment.
Within the services sector, two areas, business services and engineering
and management services, accounted for one-half of the upward revision
to California employment levels. Business services is a diverse sector,
which includes advertising, software and data processing services and
personnel supply services or "temp agencies." Engineering and
management services also is diverse and contains some sub-categories which
have been cited as sources of growth in California, such as research and
testing laboratories, public relations firms, and management consultants.
Combined, these two sectors account for a large share of "multi-media"
employment, which some analysts have identified as an important source
of unmeasured job growth.
Although the net revision in California employment was positive, employment
in wholesale and retail trade was revised downward. Overcounted jobs in
the trade sector accounted for more than four-fifths of the gross downward
revision in California. The only other major industrial categories to
lose jobs in the revision were construction, and finance, insurance and
real estate.
Overall, the revised data indicate that employment growth in nearly
all major industrial categories was higher in 1996 than in 1995 (Table
1). The only exceptions were transportation and mining.
By Region. Within the state, the revisions indicate that employment
previously was underestimated in the San Francisco Bay Area and overestimated
in Los Angeles County (Table 2). For the Bay Area, the December employment
level was revised up by 67,700 jobs, raising 1996 employment growth to
3.3 percent, 1.3 percentage points above the previous estimate. In contrast,
estimated year-end employment in Los Angeles County was reduced by 46,600
jobs, lowering the county's job growth rate to 1.8 percent. In most other
areas of Southern California and in the Central Valley, net employment
revisions were positive.
In the San Francisco Bay Area, the San Francisco MSA -- San Francisco,
Marin, and San Mateo counties -- accounted for most of the upward revision
in employment. Job growth in the San Jose MSA also was underestimated
in the previous series. Together these two MSAs accounted for more than
two-thirds of the gross upward revision to California employment. A majority
of the upward revision in the Bay Area was in business and engineering-management
services and high-tech manufacturing.
In Los Angeles County downward revisions in wholesale and retail trade,
construction, and finance, insurance, and real estate swamped upward revisions
in estimates of manufacturing employment. Although Los Angeles County
received about one-third of the upward revision to state manufacturing
employment, large overestimates in these other sectors combined to make
Los Angeles responsible for nearly all of the downward revisions to California
employment.
Overall, the revised employment data show substantial variation in economic
performance across broad regions in the state. Since the middle of 1995,
job growth in the San Francisco Bay Area has substantially outpaced growth
in both Los Angeles County and the other regions of Southern California
(Figure 1). In the San Francisco Bay Area, rapid growth has pushed employment
levels well beyond their previous peak in 1990 (Figure 2) and reduced
the unemployment rate to just 4.1 percent, 0.8 percentage points lower
than its year ago figure. In 1996 the Bay Area economic recovery broadened,
as employment growth picked up in population dependent sectors such as
wholesale and retail trade, finance, insurance, and real estate, and state
and local government. Furthermore, the Bay Area's strongest sectors, high-tech
manufacturing and business services, continued to post strong gains in
1996; job growth in the business services sector is estimated to have
jumped 10 percent in 1996 following a gain of about 15 percent in 1995.
In contrast, Los Angeles County remains well short of its previous peak
level (Figure 2). Defense downsizing, consolidation in the finance industry,
and substantial out-migration have held down the growth of population
dependent sectors such as trade and finance and real estate and kept the
L.A. County unemployment rate above that of Orange County and San Diego.
Still, the L.A. economy did improve durng 1996. Employment growth picked
up in manufacturing, transportation, trade, and state and local government,
and the unemployment rate declined 0.5 percentage point.
Conclusions
Revised employment data indicate that the California recovery continued
to gain strength in 1996. The revised data show that payroll employment
grew by 3.0 percent in 1996, and that the statewide unemployment rate
declined by nearly one percentage point. Continued strength in high-tech
manufacturing and business services was augmented in 1996 by increased
employment growth in construction, trade, finance and real estate, and
state and local government, keeping employment growth in California well
above the national pace. While differences in the pace of growth among
California's regions persist, most areas of California did improve during
1996.
Payroll employment in Alaska declined slightly in January,
but employment remains above year ago levels. Revised employment estimates
for 1996 show that total nonfarm payroll employment grew by 1/2 percent
in 1996, one of the weakest state performances in the nation. Over the
last twelve months, gains in the services and government sectors largely
have been offset by declines in Alaska's mining and manufacturing industries.
Construction continues to be one of the strongest sectors in the Alaskan
economy, although it averaged just 1.6 percent growth in 1996.
On a more positive note for the mining industry, test wells and initial
studies conducted on a prospective oil deposit bordering the Arctic National
Wildlife Refuge (ANWR) have shown promise. However, further study of the
Sourdough prospect will be required, and the field's proximity to the
protected wildlife refuge may spark debate between environmentalists and
developers.
Oregon's economy continued to grow at its recent pace
of about 4 percent in recent months, and it shows few signs of slowing.
In January employment expanded at a rapid pace in manufacturing, trade,
and government. Manufacturing employment has increased by almost 3,000
jobs since November, largely due to expansions at high-tech manufacturing
firms. Employment growth in retail trade, finance and real estate, and
local government has picked up in recent months as population inflows
and a strong economy began to increase the demand for consumer goods and
services.
The fast growing high-tech manufacturing sector in Oregon was given
another boost in recent months as both Epson and Sony announced plans
to expand production. Epson plans to add 200 jobs at its Hillsboro plant
by July, bringing total employment at the plant to 2,000 workers. Sony
Disc Manufacturing announced plans to expand its CD manufacturing plant
in Springfield, adding both jobs and construction projects to the local
economy.
Rapid growth continued in Washington in recent months,
pushing the state unemployment rate down to 5.3 percent in January. Revised
employment data confirm that 1996 was a good year for Washington, as employment
growth picked up in nearly every sector of the economy. Boeings resurgence
and strong gains in high-tech manufacturing combined to create almost
23,000 new manufacturing jobs in Washington in 1996, bringing manufacturing
in line with services in terms of job creation. At the end of 1996 Washington
was ranked 12th in the nation in overall job growth.
The residential construction industry was a major benefactor of sustained
job growth in 1996, particularly in the Seattle area. Construction employment
grew by 9.2 percent in 1996 and recent declines in residential vacancy
rates suggest that demand for properties remains strong. Thus far, strong
demand and limited supply is translating into higher prices for home buyers.
In King County, condominiums have begun to outsell detached single-family
homes, in part due to price differences. The average price of a detached
single-family home is about $250,000 versus about $160,000 for a condominium.
Relatively strong economic growth continued in Arizona
in recent months. Total nonfarm employment increased at a 3 percent annual
rate in the fourth quarter of 1996 before edging down in January. Revised
estimates show that for 1996 as a whole, Arizona employment increased
about 5-1/2 percent, the same pace as in 1995. However, the composition
of Arizona employment growth shifted in 1996. Manufacturing and construction
job growth slowed in 1996, but this was offset by a pickup in the finance,
insurance, and real estate and services sectors.
The slight slowdown in manufacturing job growth occurred despite a large
pickup in exports from the state; Arizona exports increased about 43 percent
in 1996. Apparently, any pickup in employment in Arizona's major exporting
manufacturing industries was offset by slower gains elsewhere, such as
in the construction-supplying industries--lumber and wood products and
stone, clay, and glass. Although residential building activity appears
to have peaked in early 1996, contract awards for nonresidential construction
have been trending upward and continue to support moderate gains in overall
construction employment.
The California economy continued to expand rapidly
in recent months, although employment growth appears to have been disrupted
by adverse weather in January. Payroll employment increased at about a
3-1/4 percent annual rate in the fourth quarter. January's heavy rains
and flooding appear to have dampened retail employment during the month,
but the losses were offset to some extent by job gains in the construction
and trucking sectors. The underlying pace of employment growth continues
to be strong.
Increased labor force participation is tempering the rate of decline
in the state unemployment rate, despite the relatively fast employment
growth. The overall California unemployment rate fell about 1 percentage
point over the course of 1996 to 6.8 percent at the end of the year. A
growing fraction of those unemployed are re-entrants or new entrants to
the labor force. Although this partly reflects the typical pro-cyclicality
of labor force participation rates, the recent federal reform of welfare
programs also has provided an impetus to labor force participation in
California and other states.
The economy of Hawaii weakened slightly over
the course of 1996, and additional indications of softness emerged near
year-end. Payroll employment edged down 0.3 percent in 1996, and the state
unemployment rate increased about 1/2 percentage point to 6-1/2 percent.
Construction employment and building activity declined further in 1996
from already low 1995 levels. The manufacturing sector in Hawaii contracted
last year, and the sizeable retail trade sector also lost jobs.
Sluggish tourism spending has helped hold down the retail sector in
Hawaii. Although visitor arrivals trended up through much of 1996, the
depreciation of the Japanese yen relative to the U.S. dollar reportedly
began to negatively impact Hawaii retail sales by mid-1996, as Japanese
visitors cut back on spending in Hawaii in the face of lower purchasing
power. Although the flow of eastbound visitors was strong through most
of the year, it weakened near year-end. Japanese trip packagers recently
announced price increases, and surveys of advance bookings have been weak
enough to constrain optimism about the outlook for tourist arrivals in
1997.
Idaho recorded solid employment gains in 1996. Revised
payroll employment figures show 2.9 percent growth during the 12 months
ending in December, with expansion in all major sectors. A strong January
kept growth over the past 3 months at a similar pace and reduced the monthly
state unemployment rate to 5.1 percent. As of January Idaho was ranked
sixth in the nation for overall job growth. Recent declines in durable
goods manufacturing have been offset by rapid expansion in food processing;
the nondurable manufacturing sector has averaged nearly 14 percent annualized
job growth during the past four months.
Idaho's previously rapidly growing construction industry slowed in 1996.
Residential and nonresidential construction awards declined after July
and construction employment grew by less than one percent last year. January's
pickup in construction employment may reflect transportation infrastructure
repair necessitated by adverse weather.
Nevada's rate of payroll employment growth continues
to lead the nation. Revised figures show that state employment increased
by 7.7 percent in 1996, a pace that has held the unemployment rate at
or below 5 percent for more than one year. Recent employment growth has
been relatively balanced across industry sectors. Although construction
employment growth decelerated and construction awards declined in recent
months, future construction plans--including a multi-million dollar residential
apartment complex in Clark County--should keep activity high.
Nevada also leads the nation in population growth, which, combined with
rapid employment growth, has swelled demand for a variety of services.
Growth has been particularly rapid in the business service industry, and
in trade industries such as food stores and eating and drinking establishments.
Rising demand for public services such as local education has contributed
to substantial recent growth in Nevada's state and local government payrolls.
Utah's economy expanded rapidly in 1996. According
to revised figures, total payroll employment grew by 4.6 percent during
the year. All major sectors recorded solid gains, with service sector
growth leading the way at 8 percent. Growth in recent months (through
January) largely has continued these trends, and the unemployment rate
declined slightly in January, to 3.2 percent. The only surprise comes
from the construction sector, where revised figures show a sharp slowdown
from approximately 20 percent growth during 1994-95 to 3.9 percent growth
over the past 12 months.
Despite the recent slowing in construction employment growth, the outlook
for this sector appears bright in 1997. Utah's construction industry contributed
a state record $3-1/2 billion of new construction in 1996, and a multitude
of large commercial and infrastructure projects are slated to begin or
proceed in 1997. In contrast, residential construction permits have declined
somewhat in recent months. This appears to be explained in part by California's
strengthening economy, which has stemmed the exodus of that state's jobs
and residents to Utah.
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