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Contacts reported strong performance by the Twelfth District economy in recent weeks, characterized by generally robust demand for final products and labor inputs. Although some wage pressures were evident, prices for final goods and most services have remained fairly stable, in part due to vigorous competition in the retail trade sector. District manufacturers reported strong demand, including some increases in export demand, although aircraft deliveries continued to decline. In addition, contacts saw few signs of capacity constraints in manufacturing. Agricultural conditions were mixed. Activity in the construction and real estate markets remained strong in many parts of the District, although slowing was reported in a few states. Financial institutions reported strong demand for credit and adequate liquidity.
Wages and Prices
District respondents reported continued tight labor markets and some upward compensation pressure. Prices for final goods and most services, however, remained fairly stable during recent weeks. Both skilled and entry level workers remained scarce in most District states. Respondents from the retail, agriculture, and manufacturing sectors indicated increases in wage pressures, especially for those with computer and other technical skills. In addition, contacts cited increases in benefits costs and the use of incentives such as retention bonuses and salary increases in connection with job reclassifications. Competitive pressures reportedly held down price increases in the retail trade sector. Sales of discounted products have been especially brisk, and manufacturer incentives contributed to flat auto prices. However, the price of ready-mix concrete increased due to capacity problems and a lack of raw materials. In addition, prices for transportation and courier services increased due to rises in fuel costs and a shortage of licensed truck drivers.
Retail Trade and Services
Respondents reported generally strong retail sales and manageable inventories in the survey period. One contact cited a buildup in apparel inventories as an exception. Some constraints along the retail supply chain have been apparent. Contacts in California reported slower deliveries from manufacturers, while respondents in other District states mentioned shortages of truck drivers and shipping containers. Reports from service providers indicated that advertising volume for "dot com" businesses has been heavy.
Manufacturing
District manufacturers reported generally favorable conditions. For example, contacts in the pharmaceutical, biotechnology, wood products, and semiconductor industries reported strong sales. Respondents from several industries reported increased exports due to strengthening global demand. For example, a contact in the machine tool industry mentioned an improvement in Japanese demand. Respondents saw few signs of general capacity constraints or a scarcity of input goods. One contact noted that wood product inventories in the Pacific Northwest have increased in recent weeks but remain acceptable. In Washington, Boeing's deliveries have continued to decline.
Agriculture and Resource-Related Industries
Conditions for District agricultural producers were mixed during the most recent survey period. District beef producers benefited from rising demand and high sales prices, combined with low feed costs. However, in Arizona, ranchers have been concerned by a lack of spring grass for grazing due to continued drought conditions. District pecan crops were larger than expected and sold at good prices. An Intermountain producer reported that alfalfa prices have firmed in recent weeks. However, producers in the Pacific Northwest reported a decline in apple and pear crop yields compared to last year and increases in fresh pack and canned inventories. Low cotton and grain prices continued to affect District growers of these commodities. Increases in the prices of oil, chemicals, and fertilizers boosted farmers' costs.
Real Estate and Construction
Construction and real estate market activity in the District generally was strong during the survey period, although signs of slight cooling were evident in some states. In California, residential sales prices continued to rise substantially. In Washington and Arizona, residential construction and sales activity has been strong in recent weeks, but there was a report of decelerating price increases in Washington. Housing starts increased in Northern Nevada, and house prices in Hawaii were either stable or rising. In contrast, slower residential construction activity, sales activity, and price appreciation were evident in Oregon, Utah, and Idaho. Activity in nonresidential markets was strong in most District states. Structural steel delivery time increased in California in recent weeks. However, slower business construction activity was reported in Utah and some increases in commercial vacancies were reported in Arizona.
Financial Institutions
Reports of strong financial conditions were widespread in the District during the most recent survey period. Strong loan demand was met by ample liquidity.
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Dallas