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Reports from
business contacts indicate that the Twelfth District's already firm economic
expansion acquired some additional momentum in March and early April. Price
inflation for final goods and services has remained low overall, although
increases in the prices of energy and key industrial commodities raised costs
in some industries. Some District firms have increased their hiring pace for
permanent employees or indicated plans to do so in the near future. District
retailers and service providers saw generally solid demand. Manufacturing
activity picked up for a variety of products. Both domestic and foreign demand
for District agricultural and resource-related products reportedly was solid.
Activity in residential real estate markets remained vibrant, while the glut in
commercial real estate markets eased a bit. Most banks reported solid loan
demand.
Prices and Wages
The reports indicated a
slight pickup in the pace of price increases in recent weeks. Contacts noted
rising prices for gasoline and certain commodities, notably steel. These
increases raised transportation costs for consumers and businesses and also
raised production costs in selected industries, but the overall impact on final
prices was limited, reportedly due to stiff competition in most industries.
Upward
wage and salary pressures in the District were quite modest during the survey
period. However, the rising cost of health benefits increased labor costs
somewhat, and employers have responded in part by shifting some of the burden
to workers. In labor markets more generally, respondents noted a modest pickup
in hiring by District businesses, especially in the construction, education,
health-care, and retail sectors. Hiring was focused largely on permanent
rather than temporary workers, and some firms not currently hiring reportedly
plan to do so in the near future. By contrast, some state and local
governments cut staff due to budget constraints.
Retail Trade and Services
District retail sales were solid overall and generally stable relative to the previous survey
period. Automobile sales were at high levels, sustained in part by renewed
financing incentives. However, sales were stronger for foreign than for
domestic makes, and inventories were at unusually high levels.
District service
providers saw further strengthening in demand. Sales increased for media
services and high-tech services in some areas, and reports indicated that
activity at District seaports had stepped up to handle increased merchandise
trade flows. Demand for preventive and outpatient health-care services edged
up further, although rising out-of-pocket payments for patients reportedly have
led to reduced use of hospital services in some areas. District travel and
tourist activity generally was solid, with notable strength reported for Hawaii, Utah, Arizona, and Southern California. A Southern California respondent also
noted substantial sales gains in the restaurant industry there. The weak
dollar relative to the yen reportedly helped boost Japanese visitor counts to
selected District destinations. Although hotel occupancy rates rose in many
areas, room prices generally remained somewhat low compared to prior years,
reportedly due in part to rising reliance on bargain deals available through
the Internet.
Manufacturing
District manufacturers
generally faced increased demand for a variety of products, consistent with
reports of a further pickup in capital spending by firms during the survey
period. Sales of semiconductors and other high-technology products
strengthened, as businesses replaced existing stocks of computer and communications
equipment. Prices for high-tech products rose modestly, due to reduced
inventories and increased capacity utilization. Both domestic and foreign
demand for wood products was strong, and prices for pulp, containerboards, and
wood panels edged up as a result. District apparel makers saw rising orders,
and relatively lean inventories kept prices elevated in recent weeks. The weak
dollar has helped boost exports of many manufactured products; however, it also
has increased prices on imported raw materials and intermediate goods,
exacerbating increased production costs associated with rising scarcity of
selected commodities, particularly steel.
Agriculture and Resource-related
Industries
District contacts
reported robust demand and sales for a variety of agricultural and
resource-related items. Demand for nuts was especially strong, and several
countries have relaxed bans on imports of American cattle, increasing the
demand seen by District cattle ranchers. More generally, agricultural contacts
reported that demand for items with high protein content has been boosted by
the growing popularity of protein-heavy diet regimes. Overseas demand for
District agricultural products remained quite strong, held up in part by the
low value of the dollar. In energy markets, capacity utilization was high for
electrical generation and oil and natural gas extraction, and contacts noted
scattered capacity increases.
Real Estate and Construction
Residential real estate markets remained robust during the most recent survey period, and conditions
improved a bit in nonresidential markets. The pace of home sales, price
appreciation, and construction was rapid, especially in Southern California and
Hawaii, and new homes sold quickly, often before completion. However, higher-priced
homes typically remained on the market longer than less-expensive homes. With
low interest rates pushing up home ownership rates, apartment vacancies edged
up further in some areas. On the commercial side, demand for office space
improved a bit, with a slight dip in vacancy rates reported for some markets.
Moreover, demand for industrial and retail space was solid in parts of Southern California, and contacts noted several large-scale construction projects in that
region.
Financial Institutions
District banking contacts reported that overall demand for commercial and industrial
loans improved slightly, particularly for loans to small businesses. Demand
for commercial real estate loans picked up in several markets, and bank loan
portfolios generally exhibited stable credit quality.
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