| Skip to content
|
Reports from contacts indicate overall solid performance across the Twelfth District economy in recent weeks. District retailers reported moderate sales gains and service providers noted an acceleration in growth above an already rapid trend. Manufacturing activity in the District picked up slightly, boosted by strong demand for high-tech products. Reports from District agricultural producers generally were favorable. Residential and commercial real estate activity remained at high levels, although slower home sales tempered growth in construction in some states. District financial conditions remained healthy, with intense competition for quality borrowers. Respondents reported that surging energy costs and rising employee compensation were beginning to damp profits, as competitive pressures kept producers from passing increased costs to consumers.
Wages and Prices
Labor markets remained tight throughout much of the District, particularly for workers with financial, computer, or other technical skills. Recruiting and retaining employees remained difficult for firms in most industries. Rapid employee turnover and rising wage and benefit bills reportedly are beginning to temper profits, encouraging many firms to invest in labor-saving technologies.
With regard to prices, contacts noted that increased fuel and energy prices continued to affect production costs in a wide variety of industries. Surging electricity prices over the last several months prompted aluminum producers in the Pacific Northwest to curtail production and boosted irrigation and greenhouse costs for many agricultural producers in the District. Contacts noted that rising electricity prices also have raised operating expenses at hotels, theaters, and amusement parks, particularly in San Diego. Higher fuel prices have prompted freight companies to impose surcharges and caused merchandise vendors to ask wholesale customers to pay separately for shipping. Despite rising costs, contacts noted that competitive pressure has prevented most producers from raising prices of final goods and services.
Retail Trade and Services
District retailers reported modest sales growth in recent weeks. In California and the Pacific Northwest department stores and discount retailers posted moderate sales growth, while apparel and electronics retailers reported flat sales. In the Intermountain states, vehicle sales were flat. Contacts throughout the District noted that high gasoline prices continued to damp demand for SUVs. Overall, District retailers reported adequate inventory levels and few problems obtaining merchandise from suppliers.
Service industry respondents in most District states reported strong growth. Demand for telecommunications, data communications, and cable television services picked up in recent weeks, producing material shortages, particularly for digital devices. Demand for software and information processing services intensified recently, as businesses resumed work on information technology projects postponed during Y2K and looked to satisfy unmet labor needs in part with technology. Container traffic through the Ports of Long Beach and Los Angeles accelerated during the survey period, lifting port activity to record highs. In California and Hawaii, strong demand for hotels pushed occupancy rates up and boosted room prices.
Manufacturing
Manufacturing contacts throughout the District reported generally solid conditions. Contacts in District aircraft, biotechnology, and semiconductor industries reported strong sales growth. Strong demand for semiconductors further increased capacity utilization rates, prompting some producers to accelerate scheduled expansions. Respondents in Washington noted that improved aircraft sales have slowed the rate of layoffs at Boeing; however, demand for component parts from local suppliers reportedly remains weak. District aluminum and steel manufacturers continued to be hindered by rising energy costs and strong import competition. Contacts in the Pacific Northwest reported layoffs among a number of aluminum producers.
Agriculture and Resource-related Industries
District agricultural producers reported generally favorable conditions during the survey period. District farmers reported good growing conditions and moderate growth of foreign demand. Contacts expect strong corn and cotton yields; however, since prices for these commodities remain low, farmers are concerned about future profitability. Stable prices for beef cattle have benefited District ranchers in most states, although dry weather in Arizona and Oregon has resulted in unplanned herd reductions.
District energy producers reported strong demand for oil, natural gas, and electricity. Fires resulted in the closure of two coal mines in Utah and increased demand for coal from remaining mines. As investment in energy projects has increased, contacts reported difficulty obtaining drilling rigs and extraction services.
Real Estate and Construction
Real estate and construction activity remained at high levels in most District states, although slower home sales have cooled construction growth in some states. In contrast, demand for commercial real estate remains high, particularly in California, where low vacancy rates and rising rents have spurred some speculative construction activity. Respondents in Arizona, Hawaii, and Utah also reported high levels of commercial construction activity. The strength of construction demand has produced some material and labor shortages. For example, builders in Arizona reported back-orders of steel and delays in receiving telephone service and in California shortages of skilled workers reportedly have delayed completion of a number of projects.
Financial Institutions
District contacts reported generally favorable financial conditions in recent weeks. Contacts at financial institutions in California, Utah, and Hawaii reported strong loan demand and deposit growth. Credit is readily available in these states, and there is stiff competition for quality borrowers. In contrast, financing availability reportedly tightened for Internet-related start-up firms in California.
|
Dallas