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Reports from Twelfth District contacts suggest that economic activity continued to expand at a moderate pace in most of the region in June through mid-July. Respondents reported little change in prices for most consumer goods and services, though most noted further increases in housing prices. In labor markets, contacts noted little upward pressure on wages, but higher costs for health care and other insurance. While contacts noted that consumers spent cautiously during the survey period, households also continued to respond to discounting in the retail trade and service sectors. The survey responses pointed to some improvement in high-tech manufacturing, particularly semiconductors. Overall, however, businesses were cautious about upgrading and expanding facilities, equipment, and software. Conditions in the District's agricultural sector improved in recent weeks. Commercial real estate markets remained weak, with vacancy rates increasing slightly. Residential markets generally were solid; conditions ranged from good with some early signs of cooling to still hot in heavily populated Southern California. Bank contacts indicated that demand was strong for household loans but weak for business loans.
Prices and Wages
District respondents observed little upward pressure on wages and prices in June through mid-July. Discounting held down final sales prices on many retail products. On balance, producers' input prices held steady, except for spikes in wholesale electricity prices. Contacts also noted ample labor supply and stable wages in most areas. However, respondents indicated that health care and other insurance costs rose further during the most recent survey period.
Retail Trade and Services
Responses to the most recent survey indicated growth in overall sales for the retail trade and service sectors was moderate in recent weeks. Consumers were cautious in their spending for most retail goods and services in June through mid-July. However, contacts noted that new vehicle sales were boosted by aggressive pricing practices. Demand for major home appliances and remodeling services generally remained robust in the District; purchases were advanced in part by low interest rates and strong home sales. Most respondents indicated that inventories for retail goods were stable, though concern about a potential longshoremen's strike on the West Coast reportedly prompted an acceleration of deliveries of imports by some retail businesses.
Contacts noted generally improved conditions in the District's travel and tourism sectors. Respondents observed an increase in travel generally; however, hotel occupancy rates still were below year-earlier levels in several areas, including California and Hawaii.
Manufacturing
In the manufacturing sector, respondents reported some signs of improvement in recent weeks, notably in the semiconductor industry. Respondents noted a pickup in orders and sales for most varieties of semiconductors. Among semiconductor producers, inventories reportedly were flat, capacity utilization rose steadily, and prices were flat to up slightly. Prices for high-tech products more generally were soft. Contacts also noted ongoing weakness in the telecommunications industry, with depressed prices and profits leading to additional downsizing. In aerospace, defense contracts were a plus for the economy of Southern California, while weakness in commercial aircraft manufacturing held back growth in the state of Washington.
Most respondents indicated that inventories remained stable during the recent survey period. They also noted little evidence of changes in manufacturers' inventories or shipping patterns in response to concerns about a potential strike at West Coast ports. Several contacts noted that the weaker dollar appeared to be boosting exports.
Agriculture and Resource-related Industries
Conditions in the District's agricultural sector generally improved in June through mid-July. Respondents reported higher prices for various nuts, fruits, and dairy and forest products, although lower prices persisted for cotton, wine grapes, logs, and cattle. Contacts indicated that the weaker dollar has fueled District export activity in recent weeks. Fires and drought adversely affected ranchers in parts of the District. Electricity demand rose in the most recent survey period, and wholesale spot electricity prices spiked as summer temperatures soared throughout the region.
Real Estate and Construction
Respondents continued to report disparate conditions in District real estate markets in June through mid-July. Commercial real estate markets deteriorated further, while most residential markets remained relatively solid. Contacts noted that commercial office vacancy rates rose slightly during the current survey period. Lease prices declined or remained flat throughout the District, most notably in high-tech centers in California, Washington, Oregon, and Idaho. Construction costs for commercial buildings in several District states continued to fall.
In contrast, demand for residential real estate in the District generally remained solid in June through mid-July. Conditions were very robust in heavily populated Southern California, where house prices and building activity rose. Contacts in Hawaii also indicated demand for residential real estate was strong. Respondents in most other areas reported that home sales and prices rose, though less rapidly in recent weeks than earlier in the year. Contacts reported some softening in selected markets for high-end housing. In addition, in parts of the District, respondents noted rising vacancy rates and declining rents for multifamily and other rental housing units. Overall, residential construction activity continued to rise in the District.
Financial Institutions
The District's financial sector remained healthy in the most recent survey period. Contacts reported that bank earnings and asset quality were sound. Respondents noted strong household demand for credit. However, demand for business loans was weak, as businesses remained cautious and continued to delay capital investments.
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Dallas