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U.S. Federal Reserve Beige Book: San Francisco District (Text)

The following is the text of the Federal Reserve Board’s Twelfth District-- San Francisco


Economic activity in the Twelfth District grew at a modest pace during the reporting period of mid-August through late-September. Upward price pressures remained limited overall, and upward wage pressures remained muted. Sales of retail items rose slightly, and demand for most business and consumer services gained further on net. District manufacturing activity edged up. Agricultural output was mostly steady, while activity continued to trend up for providers of energy resources. Home demand in the District showed continued signs of improvement, and demand for commercial real estate was mainly stable. Financial institutions reported overall loan demand was unchanged or up somewhat on balance.

Wages and Prices

Price inflation remained quite limited for most final goods and services during the reporting period. Prices increased overall for some energy items including electricity, crude oil, and retail gasoline. Natural gas prices remained near historically low levels. Contacts noted high feed prices are passing through to grocery stores and restaurants. Contacts in the tech sector reported slightly lower prices of some technology-related products. For most products and services, vigorous competition among firms and cost-conscious purchasing behavior by consumers continued to keep price inflation in check.

Contacts in most sectors reported very limited upward wage pressures. Moderate wage increases in the 2 to 3 percent range were noted for employees in some manufacturing sectors, although lower levels of staffing were also reported. Contacts continued to note wage gains for workers with specialized skills in the information technology sector. Some upward pressure on wages of skilled construction workers was noted, as well. For the remainder of 2012, most contacts reported limited hiring plans, suggesting that upward wage pressures will remain subdued.

Retail Trade and Services

Retail sales rose further overall. Contacts reported sales were a bit stronger relative to the prior reporting period. Discount chains and online retailers continued to outperform traditional department stores. At grocery stores, consumer spending was soft as shoppers continued to shift their purchasing decisions in favor of cheaper products. Contacts reported a strong pace for auto sales, significantly above the pace from the same period last year. Demand for used vehicles also remained robust.

Demand for most business and consumer services gained on net. Sales continued to grow for a wide variety of technology services, with expectations for further rapid growth in selected segments, such as cloud computing services. Demand for legal services was steady. For providers of health-care services, demand was largely stable. Demand picked up further for restaurants and other food-service providers. Some contacts in the District’s travel and tourism sector reported improvement in conditions overall.


District manufacturing activity edged up on balance during the reporting period of mid-August through late-September. Production activity remained at high levels for makers of commercial aircraft and parts. Manufacturers of wood products reported stronger than expected output and sales. New orders improved somewhat for manufacturers of semiconductors and other technology products. Demand for steel was mostly stable, albeit at low levels, while sales of processed scrap metal fell further, largely as a result of sustained weak demand abroad. For petroleum refiners, capacity utilization rates increased to the highest levels in years, as growing export sales offset relatively weak domestic demand for refined petroleum products.

Agriculture and Resource-related Industries

Agricultural activity was mostly stable, and extraction activity of natural resources used for energy production continued to expand. Contacts noted continued efforts by agricultural businesses to increase their productivity. Reports indicated that demand for cotton was strong. Higher grain and feed prices prompted District livestock producers to reduce herd sizes. Favorable weather conditions in some parts of the District helped stabilize production. Extraction activity for petroleum and natural gas remained at high levels or expanded a bit further on net.

Real Estate and Construction

Home demand in the District showed continued signs of improvement, while demand for commercial real estate was largely unchanged. Although still well below its historical average, the sales pace for new and existing homes picked up further in many areas. Contacts noted that pent-up demand may spur additional gains in coming months. Contacts reported a decrease in the inventory of available homes and a noticeable increase in construction activity. On the nonresidential side, contacts observed a reduction in commercial property vacancies in parts of the District.

Financial Institutions

District banking contacts reported that loan demand was unchanged or up somewhat compared with the prior reporting period. Some contacts reported that business loan demand inched up, although some of the new activity was for refinancing rather than expansion. Reports continued to highlight ample liquidity and stiff competition among lenders to provide credit to well-qualified business loan applicants. Contacts indicated that some borrowers received multiple offers to finance projects. Demand for consumer credit remained relatively strong, reflected primarily in high lending activity for automobile and home purchases.

SOURCE: Federal Reserve Board

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