WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Twelfth District, published
Wednesday:
TWELFTH DISTRICT – SAN FRANCISCO
Summary
Economic activity in the Twelfth District expanded at a modest pace
during the reporting period of October through mid-November. Price
inflation for final goods and services was subdued overall, and upward
wage pressures were quite limited. Sales of retail items and most
business and consumer services rose further on net, and contacts noted
expectations for sales growth during the holiday retail season. District
manufacturing activity was uneven but appeared to expand on balance.
Agricultural output and sales increased, and extraction activity rose
for providers of energy resources. Housing demand continued to firm, and
conditions were largely stable for commercial real estate. Contacts from
financial institutions reported that overall loan demand was largely
unchanged, while credit quality improved.
Wages and Prices
Upward price pressures were very limited on balance during the
reporting period. Prices fell for some energy items, mainly crude oil
and retail gasoline; prices rose significantly for natural gas but
remained very low by historical standards. Earlier price increases for
food commodities prompted moderate price increases by restaurants, in
the range of 2 to 3 percent. Price movements for raw materials used in
the agricultural, industrial, and construction sectors were uneven but
appeared to be slightly upward on balance. Retail prices were
characterized as largely flat.
Upward wage pressures were modest overall. In most sectors, limited
hiring activity and extensive worker availability held down recent and
planned increases in wages and overall compensation, with reported
numerical increases of 2 to 3 percent in general. Only a few cases of
significant upward wage pressures were noted, including for truck
drivers, health-care workers, and entry-level employees in a few
geographic areas where unemployment rates have declined substantially.
Retail Trade and Services
Retail sales expanded further. A pickup was noted for department
store sales during the reporting period, on the heels of a slight
slowdown earlier. Significant sales gains were reported for consumer
technology products such as tablet computers and games, and retailers
added to inventories of these products in anticipation of solid sales
growth during the upcoming holiday season. Sales of new and used
automobiles remained strong, running well above levels from 12 months
earlier, with further gains expected at year-end.
Demand for business and consumer services expanded on net. Sales
continued to grow for various technology services, as consumer demand
remained high and businesses in many sectors focused their limited
capital spending on information technology equipment and software.
Demand for health-care services stayed somewhat weak, due to an ongoing
decline in the use of discretionary medical services; however,
health-care providers continued to invest in new information technology
products to enhance efficiency and respond to emerging legislative
requirements. Sales expanded further for restaurants. Activity in the
travel sector was robust, with strong growth for visitor counts and
spending in Hawaii and continued sales growth and profitability reported
for U.S. airlines in recent months.
Manufacturing
District manufacturing activity was mixed across sectors but
appeared to expand on balance during the reporting period of October
through mid-November. Production activity for commercial aircraft and
parts has been running well above levels from last year, with further
gains in production and sales expected over the next few years. Demand
continued to grow at a modest pace for pharmaceutical manufacturers. For
producers of wood products, capacity utilization and sales have held up
in recent months and generally have been running above their levels from
last year. By contrast, the slowdown continued for makers of information
technology equipment, with further sales declines reported for some
equipment categories. Demand for scrap metal and steel remained low by
historical standards but improved a bit, largely as a result of
increased demand for use in automobile manufacturing and infrastructure
construction projects. Production activity fell at petroleum refineries
in response to recent declines in consumer demand for gasoline.
Agriculture and Resource-related Industries
Agricultural producers saw further sales gains, and extraction
activity of natural resources used for energy production continued to
expand. Contacts noted that the agricultural sector appears to be immune
from factors that have restrained growth in other sectors of late:
production activity and sales of most crop and livestock products have
been growing at a solid pace, as has investment spending on new
production equipment. Extraction activity expanded on balance for
petroleum and natural gas, although the number of rigs used for natural
gas extraction has been falling as producers have shifted their
extraction activities toward higher-valued oil formations.
Real Estate and Construction
Home demand in the District continued to strengthen, while demand
for commercial real estate was largely stable. Home sales have been
growing on a sustained basis in most areas, spurring incremental gains
in home construction activity. Home prices also have firmed, with
significant gains reported over the past 12 months in some areas,
substantially reducing foreclosure pressures. Construction activity for
multifamily rental projects grew further in response to rising rents and
tight availability of lower-priced homes. Demand for nonresidential
space was largely stable overall, and contacts noted that the amount of
new commercial construction was limited, although significant
construction activity continued for large infrastructure projects such
as roads and bridges.
Financial Institutions
District banking contacts reported that loan demand was largely
unchanged on balance. Business loan demand was characterized as weak to
moderate. Firms in most sectors remain uncertain about near-term
prospects for their revenues and costs; hence, they are reluctant to
make new capital investments other than those that directly enhance
business efficiency and pay returns within a short time frame. The
reports continued to highlight ample liquidity and stiff competition
among lenders to provide credit to well-qualified business loan
applicants, with community banks facing increasing competition from
larger national banks for small business lending. Consumer lending
expanded further, primarily for automobile purchases and new or
refinanced home mortgages. Contacts noted that credit quality has been
showing slow but steady improvement for business and consumer loans.
** MNI Washington Bureau: 202-371-2121 **
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