1981 Western States Outlook

By Dr. Raymond Jallow Senior vice president and chief economist United California Bank [,os Angeles, Ca.

THE economic I recoverv forecast in iggt bodes well for the 1l Western States. As in past recoveries, the West will again outperform the rest of the nation, although expansion rates states within the resron. YIhe West was generally less affected by the 1980 recession than much of the remainder of the country, but adverse conditions in several key sectors - namely construction, agriculture, and lumber-hurt individual states, especially Idaho, Montana, and Oregon. These areas should experience improvement in 1981, while other industries in the West resume their roles as growth leaders.

West will thus represent an increasing share of the total U.S. population, rising from 17 .l%o of the total in 1974 to 18.8Vo in 1981. This growth reflects continued in-migration to the area due to increasing job opportunities and the ongoing attraction of a more favorable climate.

nificant variance within the region in 1981, ranging from $8,548 in Utah to $12,692 in Nevada. The western states taken together, however, are expected to show a per capita income of approximately $11,500, a level more than $1,300 or nearly l3%o above that of the balance of the nation.

will vary among

The employment outlook is optimistic, with the number of new jobs created reaching 577,W0. This will be nearly twice the number of 1980, but will trail the average of over 800,000 new positions added in 1979. The West is expected to account for more than one-fourth of all jobs added to nonfarm payrolls in the U.S. during 198 l.

Personal income is predicted to show a sizable gain of over l3%o in l98l in the West.

Per capita income will exhibit sig-

Story at a Glance

West will see economic recovery in'81 . . . population growth optimistic employment . improved conditions in lumber and logging.

Gross regional product of the I I Western Stites is 'projected to reach $587 billion in 1981, an increase of $71 billion or l3.8%o over 1980. In real terms, the 4.8Vo growth will be substantially above the 1.57o increase projected for the rest of the nation and more than double the 2.l%o gain expected for the U.S. as a whole.

The western states are expected to account for nearly Zl%o, or more than one of every five dollars, of the total value of goods and services produced in the U.S. during 1981. If the western region were a separate nation, it would rank as the sirtlr largest economic unit in the world-behind the total U.S., Soviet Union, Japan, West Germany and France. but ahead of the United Kingdom, People's Republic of China, Italy, and Canada.

Population in the West will continue to expand at a faster rate than in the remainder of the U.S., reaching 42.4 million by the end of 1981. The

(Continued from page 28) imported oil, both of which have been predicted for next year.

Although mortgage interest rates are expected to decline in l98l from their current high levels, it is unlikely they will fall so much as to ease the affordability problem for home buyers. Does this mean housing starts will be held down much by high morr gage rates? Not necessarily. First, there is a strong basic demand arising from the maturing of the post-war baby boom. That demand is boosted by the desire of households to acquire equity in the rising value of real estate. They are willing to make sacrifices in other purchases and savings by putting a higher portion of their income into purchasing a home. A1ready, many mortgage lending institutions are qualifying families who are willing to put 30-35 percent of their income into monthly payments. The old 25 percent guideline no longer applies.

Second, many households are willing to delay purchase of their dream single-family detached house on a half-acre plot in the country. They are willing to settle for a lowerpriced town house or a condominium apartment they can afford in order to get in on rising property values as early as possible. The affordability problem, therefore, will affect the mix

Construction, which in terms of employment is more important in the West than in the U.S. as a whole, is expected to register some improvement in 198 l, although modest by historical standards. Housing permits declined by 33Vo in 1980, compared with 25Vo for the rest of the U.S. Although the forecast of 396,000 units for l98l in the West is still below 1979's level, the 3l7o rise should provide an improved employment picture.

Lumber and logging activity in Montana, Oregon, and Washington came to a virtual standstill in 1980 due to the sharp decline in housing construction. The modest upturn in

(Please turn to page 58) of housing starts perhaps as much as it will affect their number.

The rising costs of homes and home financing will affect the markets for wood in several ways. A town house or a condo counts as a housing start when it is begun, but it uses much less building materials than a detached single-family house. A modest trend toward these smaller housing units and less disposable incomes remaining after paying higher mortgage payments will also mean a smaller demand for furniture.

These considerations should not be regarded with alarm, however. The market is massive enough that their effects will be only marginal. However, they do mean that inflation will not likely allow the much-discussed market potential from the postwar baby boom to be fully realized, either in 1981 or in most years of the decade as long as inflation persists.

The need for governments to trim their spending (a prime cause of inflation when it is deficit spending) will dampen public construction. Nonresidential private construction, on the other hand, should show strength, especially in those types of buildings needed for the baby boomers to shop and work. These same types of buildings will also be boosted by the tax changes both major political parties have promised to promote for the reindustrialization of America.

Latest Energy Tax Regs

Retailers can be of service to their customers by keeping up with the Internal Revenue Service regulations concerning tax credits for energy conserving purchases.

John M. Martin, exec. v.p., National Lumber and Building Materials Dealers Association. shares the following information from James M. Goldberg in Washington, D.C., general counsel for the NLBMDA.

The Internal Revenue Service has issued final regulations implementing the Energy Tax Act of 1978, which provides a residential energy tax credit for insulation. certain other energy-conserving components, and certain renewable energy source property expenditures made in connection with a taxpayer's principal residence.

In the case of insulation and other energy-conserving components, the credit is l5Vo of the fust $2.000 of expenditures, for a maximum credit of $300. In the case of solar, wind or geothermal energy property, the credit provided by the 1978 Act is 3OVo of the first $2,000 of expendi-, tures and ZOVo of the next $8,000 of expenditures, for a maximum credit of $2,200 for expenditures made after Apr. 19, 1977, and before Jan. l, 1980.

It should be noted that the Crude Oil Windfall Profit Tax Act of 1980 has increased the credit for solar, wind and geothermal property to 40Vo of $10,000 for a.maximum of $4,000 for expenditures made after Dec. 31. 1979 and before Jan. I, 1986.

The credit applies only to expenditures made on or after Apr.2O, 1917, and before Jan. l, 1986. In the case of insulation and other energy-conserving component expenditures, the credit is available only with respect to a taxpayer's principal residence the construction (including reconstruction) of which was substantially completed before Apr. 20, 1977. To the extent that the credit exceeds the taxpayer's tax liability, the taxpayer is allowed to carry over the unused credit to subsequent taxable years beginning before Jan. l, 1988.

The final regulations with respect to the definition of "other energyconserving components" are little changed from the proposed version. The following terms are included-if they are purchased new by the taxpayer and have an anticipated useful life of at least three years.

o a furnace replacement burner which must replace an existing burner. It does not qualify if it is acquired as a component of, or for use in, a new furnace or boiler; o an automatically operated flue damper; o a furnace ignition system which replaces a gas pilot light. It does not qualify if acquired as a component of. or for use in. a new furnace or burner; o storm or thermal windows or doors. The term does not include any film applied on or over tlre surface of a window or door; o automatic clock-operated energysaving setback thermostats; o caulking and weatherstripping; and o energy usage display meters.

As for insulation, the regulations specifically exclude items whose function is primarily stuctural, decorative or safety-related such as carpeting, drapes, shades, wood paneling, fireplace screens, new or replacement walls (except for the insulating material inside) and exterior siding.