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 expanded at a modest pace during the reporting period of early July through late August. Price inflation was subdued for most final goods and services, and upward wage pressures were very modest. Retail sales rose on net, while demand for business and consumer services was more mixed. District manufacturing activity edged up. Agricultural production and sales expanded. Demand for housing strengthened, and commercial real estate activity firmed. Reports from financial institutions indicated that loan demand increased slightly.

Prices and Wages

Price inflation was subdued for most final goods and services. Reports indicated stable prices for steel and scrap metal products. Technology industry contacts reported that prices were slightly lower than had been anticipated for some business software and for computer hardware inputs. Hospitality sector contacts noted large price declines for linens, versus persistent price increases for a variety of food products.

Upward wage pressures were very modest overall. Slack in the labor market held back wage gains in most sectors, occupations, and regions. Reports indicated that overall wages at technology firms have been mostly stable or modestly increasing. However, firms in various industries continued to compete vigorously for a limited pool of qualified workers to fill certain technical positions, spurring significant wage growth in these slots.

Retail Trade and Services

Retail sales rose on net, and most contacts’ outlooks for future consumer spending improved slightly since the prior reporting period. Technology companies reported increased sales overall, with growth on the business side outpacing gains in consumer demand. However, grocery and apparel retailers noted soft sales. These contacts pointed to evidence of households taking advantage of attractive financing opportunities and devoting their budgets to big-ticket items, such as housing and autos. Large inventories at many dealerships fueled a robust pace for new and used automobile sales, especially light truck sales. Contacts indicated strong demand for hobby game products, as the core customers tend to work in relatively high-wage math and science professions.

Demand for business and consumer services varied across sectors. Reports indicated that many service providers increased capital expenditures in anticipation of stronger demand. However, contacts noted that recent demand has been tepid for elective health-care and other discretionary services, including restaurant dining. Contacts also noted soft demand and downward pressure on fees for legal services. Travel and tourism activity in Hawaii maintained its solid pace of growth, and after slipping earlier in the year, tourist activity in Southern California picked up during the summer months. Contacts noted strong convention attendance in Las Vegas but some weakness in leisure travel.


District manufacturing activity edged up during the reporting period of early July through late August. Demand for semiconductors increased, as indicated by modest growth in new orders and sales. Although capacity utilization for electronic components in general held steady, contacts noted that demand was somewhat subdued. Demand for commercial aircraft remained solid. Defense manufacturers noted more muted demand due to the ongoing effects of the federal sequester. Biotech drug manufacturing increased modestly. Shipments of steel products used primarily in nonresidential construction continued to increase, and steel producers reported that overall capacity utilization ticked up a bit further. In particular, reports indicated that capacity utilization for steel manufacturing was stronger for automobile and aircraft-related inputs than for nonresidential construction inputs. Many contacts expect manufacturing industry conditions to improve slightly in the second half of the year relative to the first half.

Agriculture and Resource-related Industries

Sales of agricultural items and resource-related production activity expanded in the District. Demand was generally strong for most crop and livestock products. However, relatively light traffic at fast-food restaurants limited sales of some vegetables. In addition, some grain producers expect slightly lower profits due to price declines. Despite a modest decline in demand for various oil products, contacts expect overall sales to increase in the medium term. Refinery utilization rates and gasoline production increased. Utility providers reported that energy sales to aerospace and housing-related firms were robust.

Real Estate and Construction

Demand for housing strengthened further, and commercial real estate activity was stable or improved. Although levels remained significantly lower than in the pre-recession period, both home sales and house prices climbed further relative to the prior reporting period in many District cities. In some areas, demand for new homes substantially exceeded the supply, and shortages of construction workers held back the pace of new home construction activity. Multifamily residential construction projects increased. Rental rates for commercial real estate edged up as occupancies climbed. Contacts in some major metropolitan areas noted declining commercial real estate inventories and expressed near-term concerns about capacity constraints.

Financial Institutions

Financial institution reports indicated that loan demand increased slightly on net. Most contacts reported increased lending relative to a year earlier, but some reported a slight downtick more recently. Contacts noted that mortgage origination levels were mostly stable despite the increase in mortgage interest rates, although the number of new applications has dropped a bit in some areas. Some contacts expect the pace of refinancing activity to slow as well. Reports highlighted ample bank liquidity and substantial competition for high-quality commercial borrowers. In the District’s Internet and digital media sectors, mergers and acquisitions activity and venture capital activity grew in terms of both deal value and volume. However, the pace of initial public offerings remained weak, and private equity activity was flat.

SOURCE: Federal Reserve Board

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