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Economic activity in the Twelfth District grew modestly during the reporting period of June through mid-July. Upward price pressures eased overall as the prices of oil and selected raw materials fell, and upward pressures on wages remained quite limited on balance. Sales of retail items were mixed, while demand for business and consumer services rose somewhat. District manufacturing activity strengthened slightly. Sales continued to grow for agricultural producers, while mining and extraction activity for natural resources expanded further. Home sales and construction remained sluggish, and demand for commercial real estate was weak overall, although continued modest strengthening was noted for some areas. Contacts from financial institutions reported largely stable loan demand.
Wages and Prices
Upward price pressures were limited during the reporting period. Price declines were noted for oil and selected raw materials such as aluminum. Furthermore, modest demand and stiff competition continued to hold down final prices for most retail goods and services, although food prices remained quite elevated. Looking ahead, contacts in most sectors anticipate that prices for their products will remain largely stable to slightly up through the end of the year, with larger gains expected for apparel.
Contacts reported that upward wage pressures were very modest overall, although some pointed to notable increases in the costs of employee benefits. Compensation gains in most regions and sectors of the District continued to be held down by high unemployment and limited hiring activity. However, upward wage pressures remained pronounced in various sectors for workers with specialized skills in the application of information technology.
Retail Trade and Services
Retail sales were mixed. Sales were largely flat for discount chains, while traditional department stores, particularly those catering to the luxury segment of the market, noted ongoing sales gains. Similarly, retailers of big-ticket items such as major appliances and furniture reported modest sales increases since the prior reporting period. Grocery sales remained largely flat. Sales of new automobiles declined, as lingering supply chain disruptions associated with the natural disaster in Japan earlier this year significantly reduced dealer inventories. In response to the shortage of new vehicles, dealer demand for used vehicles ramped up, further bolstering sales prices and trade-in values.
Demand for business and consumer services increased on balance. Sales continued to expand for providers of technology services, in particular for digital media services used for Internet-capable mobile devices. By contrast, demand for transportation services remained largely flat, as did demand for professional services. Suppliers of energy services reported further growth in deliveries to households and businesses, although the pace of growth slowed. Providers of health-care services reported that demand for their services remained weak. Restaurants and other food-service providers saw demand soften slightly. However, conditions continued to improve in the travel and tourism industry, with further demand growth reported in both the business and tourism segments of the market.
Manufacturing
District manufacturing activity strengthened a bit further during the reporting period of June through mid-July. Production rates remained near capacity for makers of commercial aircraft and parts. Demand improved modestly for manufacturers of semiconductors and other technology products, with reports pointing to high levels of capacity utilization, continued growth in sales, and inventories that were at or near desired levels given the pace of sales. Production activity and sales improved somewhat for metal fabricators, with gains in foreign demand more than offsetting weak domestic demand. Similarly, capacity utilization rates remained largely stable for petroleum refiners, as export growth for gasoline and distillate products helped to reduce inventories. Demand continued to be especially weak for wood product manufacturers, with the exception of the pulp and paper sector, which has seen sustained increases in orders.
Agriculture and Resource-related Industries
Demand continued to grow for agricultural products, and it expanded further on net for mined products and natural resources used for energy production. Final sales and orders were robust and continued to grow for a range of crop and livestock products. Contacts generally noted stable input costs and supply conditions, although wildfires in Arizona caused widespread destruction of grazing land, prompting ranchers to reduce their stocks and causing sharp financial losses in some cases. Mining activity in parts of the District expanded further in response to elevated prices for an assortment of metals. Strong global demand for oil combined with a slight increase in domestic demand, prompting additional increases in extraction activity, and extraction of natural gas was largely stable or grew somewhat.
Real Estate and Construction
Home demand in the District was essentially unchanged at very low levels, and demand for commercial real estate remained weak, albeit with further modest improvement in some areas. The pace of home sales remained sluggish across the District, putting downward pressure on prices and the pace of new home construction, although sales of existing homes picked up a bit in parts of California. In contrast to homeownership, demand for rental space continued to grow, prompting rent increases and rising construction activity for multifamily units in some areas. Conditions in commercial real estate markets remained challenging, as vacancy rates for office and industrial space stayed high in many parts of the District. However, contacts continued to note improvement in investor demand and leasing activity in a few major markets, primarily in the San Francisco Bay Area and Seattle.
Financial Institutions
District banking contacts reported that loan demand was little changed on balance compared with the previous reporting period. Businesses' cautious approach to capital spending continued to restrain demand for commercial and industrial loans, although scattered reports pointed to intensifying competition among lenders to extend credit to well-qualified small and medium-sized businesses. Looking ahead, reports from contacts in most sectors suggest that capital spending will expand only modestly through the duration of the year. Consumer loan demand was largely unchanged. Lending standards remained relatively restrictive for most categories of business and consumer loans. Venture capital financing expanded further, with contacts noting heightened levels of IPO activity.
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Dallas