Scarcity of Workers : Job Growth in Western States to Slow, Fed Says

SAN FRANCISCO — Employment in the West, which has boomed in recent years, will slow down in 1989, according to a study released Wednesday by the Federal Reserve Bank of San Francisco.

The slowdown will come even as businesses in some areas scramble to find workers, economists said.

“Generally, we expect employment growth to slow” in 1989 from about 5.5% today, said Ronald H. Schmidt, a Fed economist.

But he said there are “no signs that economic conditions will worsen” and said hints of a recession in the West are nowhere to be seen.

“Early signs of an impending recession are not present in the West,” Schmidt said. “We expect the district to perform well next year, though not as well as in 1988.”

Schmidt’s comments came at a news conference called to release a report on the outlook for the Western economy.

States profiled in the report include Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.

Some Firms Flee Cities

One of the most interesting developments in the Western region during the past year is an emerging shortage of skilled and unskilled workers in recession-hit areas that are seeing rapid growth.

A scarcity of workers in major metropolitan areas such as Los Angeles and San Francisco has prompted some businesses to flee cities for rural areas, where they hope to find more workers.

“Businesses are becoming interested in moving to areas with more unemployed labor,” Schmidt said.

He called the “deconcentration” of industries in the West a “second force” that will “fill in the gaps” in the region’s growth and influence the economy of cities with tight labor markets.

Unemployment in the West has fallen from 11% in January, 1983, to 5.5% as of September.

Low unemployment, however, is making it more difficult for businesses to find workers, a problem that could result in slower expansion of the region’s economy.

As employers scramble after fewer workers, wages rise, thus increasing the costs of production and restraining output.

“Ironically, then, the expected slowdown in growth next year is partly due to the strong employment gains made earlier,” according to the Fed report.

The report said employers in western Washington state, San Francisco and Los Angeles are complaining of labor shortages. As a result, areas that have plentiful labor supplies, such as eastern Washington, Idaho, Utah and Central California, are seeing stronger growth.

Expansion Cited

Cities such as Seattle, Los Angeles and San Francisco are predicted to see slower rates of expansion next year in part because of high housing prices and other cost-of-living factors.

Schmidt cited Boeing Corp.’s recent decision to build a factory in Spokane, Wash., along with an increase in building in Bakersfield and an expansion in the high-technology business around Boise, Ida.

Such developments, he predicted, will contribute to “substantial gains in areas that need it most.”

Some industries will see a repeat in 1989 of their strong performance this year, while others will see little improvement, according to the Fed study.

Trade volume will likely rise in 1989--good news for port cities such as Seattle and Los Angeles, along with the region’s ports and export-import industry. In addition, the West’s aerospace industry is seen as profiting next year from a high level of aircraft orders.

On the other hand, lower construction activity already has resulted in a more than 10% decrease in lumber production in the West this year. Paper and pulp mills already are producing at capacity, and the industry is unlikely to see substantial growth in 1989 over 1988 levels, Fed economists say.

Cutbacks in Computers

The region’s agricultural industry, which took advantage of irrigation and actually benefited from higher prices in the wake of the drought that clobbered Midwestern farmers, is “stronger than it has been in several years,” the Fed said. But it said farmers could experience a downturn if the lack of rainfall persists.

The computer industry is likely to see “some cutbacks” in orders as a result of lower military spending in the next Administration, but “a very, very strong commercial aircraft market” will buoy orders for electronic components and equipment, Schmidt predicted. Western banks, according to the Fed, are headed for “healthy” profits this year and “another solid year” in 1989.

Despite the generally favorable outlook for the West, economists are worried that labor shortages in certain areas could push salaries up, triggering a rise in inflation.

Schmidt said no precise impact has yet been detected, but he said “we are seeing increased wages in a number of areas in the district.”