January 19, 2000 Federal Reserve Districts Twelfth District - San Francisco

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Reports from Twelfth District contacts indicate continued strong performance of the region's economy in recent weeks. District contacts also noted tight labor markets and modest to strong wage pressure, as well as higher raw material costs, though most final sales prices have remained relatively stable. Sales of retail merchandise and services were rapid in most District states during the survey period. District contacts stated that manufacturing output was expanding. Conditions among District agricultural producers were mixed, as prices improved for beef but generally remained relatively low for farm products. District real estate markets were strong overall, however there is evidence of a slight softening in sales volume. District financial conditions remained healthy with strong loan demand. Wages and Prices District respondents reported tight labor markets and modest to strong wage pressure, while the manufacturing sector experienced higher costs for raw materials. Contacts, however, generally indicated that final sales prices have remained relatively stable due to competition and productivity increases. In California and the Pacific Northwest, shortages of skilled high-tech and financial-services employees have increased wage pressure and the use of stock option-based compensation. Skilled pharmaceutical workers also were reported to be in short supply. Contacts in several states had difficulty hiring holiday seasonal retail sales workers; a contact in Idaho, however, stated that part-time retail workers were willing to increase work hours during the holidays. District contacts noted that raw materials costs have increased. Chemical manufacturers experienced increased raw material costs, as did California apparel manufacturers. Pacific Northwest wood products manufacturers reported an increase in the cost of logs; however, productivity gains have minimized the impact on final sales prices. Telecommunications and Internet-related services prices reportedly continue to decline due to advances in technology. Retail Trade and Services Respondents indicated that sales of retail merchandise were brisk throughout the District in recent weeks, with the exception of a slight slowing in vehicle sales reported in Washington and Utah. Contacts stated that holiday sales were strong both in dollars and unit volume, with sales up significantly from a year ago and seasonal discounting somewhat below year ago levels. Especially strong sales of electronic products, such as DVD players and televisions, big-ticket appliances, housewares, and apparel were noted. District retailers reported that inventory levels generally were adequate to meet demand and indicated few problems obtaining merchandise from suppliers. District contacts noted only occasional evidence of consumer stockpiling of items like bottled water, medicines, canned food, batteries, and gasoline arising from Y2K concerns. While most contacts experienced large increases in e-commerce retail sales, Internet sales did not detract much from strong in-store sales. Internet sales reportedly affected the timing of holiday sales this year, as on-line purchases tended to be early in the season. Additionally, District retailers indicated that the Internet has affected the retail sector by increasing brand awareness, by increasing price competition and comparison shopping for big-ticket items, and by leading traditional retail stores to initiate and expand on-line marketing efforts. Business activity among District service providers remained strong in recent weeks, despite some declines in tourism during the holidays. Respondents reported robust demand for telecommunications and Internet-related services. In California, demand for shipping and freight services was strong. Visitor arrivals to Hawaii continued to rise as increased domestic travel to the islands more than offset sluggish foreign tourism. In contrast, Utah experienced a decline in holiday travel. Manufacturing Manufacturing contacts throughout the District experienced expanded output due to strong domestic demand and continued improvement of export demand. A high-tech manufacturing plant in Oregon was reopened due to improving conditions in high-tech manufacturing and the East Asian export market. Respondents found little evidence of an inventory buildup arising from Y2K concerns. District pharmaceutical and chemical producers recorded strong domestic demand and rising export demand. Agriculture and Resource-Related Industries District agricultural producers reported mixed prices and output levels during the most recent survey period. Ranchers noted increased production and consumption of beef, as well as increased beef prices and low feed grain prices. In contrast, below break-even prices and slow sales continue to affect cotton and grain growers. Real Estate and Construction Real estate construction and sales activity remained at high levels in most District states, although the pace of new construction reportedly slowed somewhat, especially in the Pacific Northwest where housing construction has softened. Existing home sales reportedly were strong in most District states, although sales were down slightly from record levels in parts of Arizona. Rising sales prices were reported in the Pacific Northwest and Hawaii. Contacts stated that commercial real estate markets remained solid in most District states during the recent survey period, and commercial construction remained robust in the San Francisco Bay Area. Financial Institutions District financial institutions continued to report generally good credit conditions and strong loan demand. They also experienced a seasonally strong inflow of deposits in December. Return to top Dallas Full report