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Economic activity in the Twelfth District expanded moderately during the reporting period of late February into the beginning of April. Price increases for final goods and services remained modest overall despite gains for selected commodities, and upward wage pressures were limited as well. Sales of retail items and demand for business and consumer services continued to expand. Manufacturing activity in the District grew further. Sales of agricultural products were robust, and demand edged up for natural resource products. Demand for residential and nonresidential real estate remained subdued. Contacts from financial institutions reported small but widespread increases in loan demand.
Wages and Prices
Price inflation for final goods and services was modest during the reporting period. Although prices remained elevated for an assortment of raw materials and commodities and rose further for some, such as oil, the pass-through to final prices was quite limited, with the noteworthy exceptions of food and gasoline. For most other retail goods and services, prices continued to be held down by subdued demand and vigorous competition.
Contacts in most sectors reported that upward wage pressures remained weak. High unemployment and limited hiring kept compensation gains at low levels in most regions and sectors, although significant upward wage pressures were noted for workers with advanced skills in technology fields. Looking ahead to the next six months, the reports indicated that wage gains are likely to pick up somewhat as more businesses eliminate wage freezes established during the downturn.
Retail Trade and Services
Retail sales continued to improve overall. Traditional department stores and discount retail chains alike reported further increases in sales. Similarly, sales revenues rose for grocers; contacts attributed the gains in part to higher food prices in addition to increased sales volumes. Despite some indications of rising appetites for discretionary spending, consumers remained largely focused on necessities and lower-priced options across a wide spectrum of products. Retailers of major appliances and furniture reported that activity remained subdued. Demand for new automobiles strengthened further, propelled partly by manufacturers' rebates and improved availability of credit. Looking forward, some retail contacts expressed concern that elevated gasoline prices will reduce sales of other items.
Demand for business and consumer services rose further. Activity expanded among providers of transportation services, with gains in cargo traffic reported for major District seaports. Providers of professional services, such as law and accounting, reported modest demand growth. Suppliers of energy services noted further increases in deliveries to households and businesses, and sales continued to grow for providers of technology services. Contacts from several parts of the District reported further growth in business travel and tourism activity, although Japanese tourist visits to Hawaii fell significantly following the March 11 earthquake and tsunami in Japan. Demand fell slightly for providers of health-care services, as some patients reportedly have been forgoing elective procedures.
Manufacturing
Manufacturing activity in the District posted further gains during the reporting period of late February into the beginning of April. Makers of commercial aircraft and parts reported modest ongoing growth in new orders, attributed in part to increased demand from airline companies for aircraft with greater fuel efficiency. For manufacturers of semiconductors and other technology products, demand continued to grow, with high levels of capacity utilization and balanced inventories noted. Sales rose further for metal fabricators, although contacts reported minor production challenges arising from constrained supplies of raw materials. Demand remained especially weak for manufacturers of wood products, with the exception of firms in the pulp and paper segment of the industry, which saw increases in orders and output. Petroleum refiners reported slight gains in gasoline sales volumes compared with twelve months earlier, despite the demand constraints arising from higher prices and poor weather, and capacity utilization rates were up accordingly. Demand continued to grow for food manufacturers.
Agriculture and Resource-related Industries
Production activity and sales were robust for agricultural products and grew further for metals and natural resources used for energy production. Final sales and orders for most agricultural products, including livestock and a wide variety of crops, continued to expand. As a result, contacts noted rising prices and constrained availability for selected inputs, including fertilizer, seeds, and machinery such as tractors. District mining activity expanded, as higher prices for assorted metals have spurred investments in new capacity. Demand for crude oil was slightly above its level from twelve months earlier, while extraction activity for natural gas expanded, increasing supply and causing the price to decline.
Real Estate and Construction
Activity in District residential and nonresidential real estate markets remained at very low levels overall, albeit with slight improvement noted in some market segments and areas. The sales pace for new and existing homes was mixed across the District but remained very weak overall, and contacts again noted that the limited availability of nonconforming "jumbo" loans held back sales of higher-priced homes in some areas. In response to sluggish sales, new home construction stayed quite subdued. However, demand for residential rental space grew further in some areas, and reports noted modest increases in the construction of apartment buildings. Demand remained weak overall in commercial real estate markets, as vacancy rates for office and industrial space remained elevated throughout the District. However, further gains in leasing activity were noted for some major markets in the District, particularly in technology-intensive portions of the San Francisco Bay Area.
Financial Institutions
District banking contacts reported that loan demand was up compared with the prior reporting period. Demand for commercial and industrial loans rose perceptibly, as businesses in a variety of sectors reportedly showed increased interest in expansionary capital spending. Demand for consumer credit also grew slightly. The reports indicated that competition among lenders to extend credit to well-qualified small and medium-sized businesses has intensified, placing downward pressure on rates and fees. Overall, however, lending standards remained somewhat restrictive for most types of consumer and business loans. Venture capital financing activity and investor interest continued to grow, particularly for companies focused on Internet and wireless applications and digital media.
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Dallas