California continues to resist the national economic recovery, but a few of the state’s key industries, notably Hollywood, are beginning to show signs of vigorous growth, the Federal Reserve Board said Wednesday.
“The motion picture industry in Los Angeles is growing at a double-digit pace, and summer box office revenues are at record levels,” the Fed said in its periodic survey of economic conditions around the country.
The Fed’s “Beige Book” report, named for the color of its cover, noted that business services such as those providing temporary office help and computer maintenance have “strengthened recently,” especially in Orange County.
Nationwide, the economy grew at a steady pace over the summer, faster in the Midwest than on the coasts, the report said.
Separately, consumer credit grew by $5.1 billion in July, the largest one-month increase in nearly four years, according to the report.
The Fed said the increase in installment credit translated into an 8.1% advance at a seasonally adjusted annual rate. The July increase was the largest monthly gain since credit grew by $5.27 billion in October, 1989, and was the 11th increase in the last 12 months.
Consumer installment credit includes all household debt not secured by real estate. It does not include home equity loans or mortgages.
Addressing issues raised by the report, Fed Vice Chairman David Mullins said the economy remains “on a path of moderate growth,” and he indicated that the central bank is unlikely to push short-term interest rates any lower.
“We don’t have a speedboat, but it’s as if we have an ocean liner--the longer it moves at that pace, the less likely it is to falter,” Mullins told Reuters news service.
So far, the ocean liner has made little room for additional passengers, as the slow but steady economic improvement fails to translate into significant job creation.
“Continued corporate restructuring is taking the bloom off employment growth,” the report said, as companies continue to make their work forces more productive rather than larger.
While economic conditions reported in the Beige Book were not weak enough to warrant lower interest rates, analysts said the Fed is unlikely to raise them either.
Fed Chairman Alan Greenspan, testifying before Congress in July, said interest rates will have to be raised eventually to ward off inflation.
But now, with prices remaining stable and the economy still sputtering, most analysts do not expect the Fed to boost interest rates until next year.
While most of the 12 Fed districts can expect slow to moderate growth, California’s economic outlook remains generally bleak despite what’s happening in Hollywood.
“Economic recovery continues to elude California,” according to the report, which relies on anecdotal evidence gathered from regional business leaders. The Fed will use the data Sept. 21, when officials meet to discuss interest rate policy.
Respondents expect the recent federal budget agreement to have negative effects in the short run, and defense cuts continue to hurt state manufacturing and aerospace industries. Retail sales are flat in the state, and consumer confidence has suffered under continued job losses, the report said.
Ron Schmidt, an economist at the Fed’s regional headquarters in San Francisco, said that “things continue to look pretty weak, with the construction and manufacturing sector really sliding a lot.”
Still, Schmidt acknowledged signs of life in the California economy and said the movie industry has had a “better year than expected.”
Motion pictures posted record sales this summer of $2 billion and created an additional 12,000 jobs over the last year, according to Lynn Reaser, chief economist for First Interstate Bancorp in Los Angeles.
Reaser chalked up the good fortune to “some luck or skill in producing some winning movies this summer” and the fact that movie studios have taken greater advantage of lucrative foreign markets.
Reaser also speculated that summer ticket sales were fueled by public demand for an escape from bad economic news.