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The Twelfth District economy expanded during the survey period of October through mid-November, but the pace of growth showed signs of further deceleration relative to recent survey periods. Upward price pressures were modest in general with the exception of sharp increases in the prices of food and energy, and increases in labor compensation were moderate on net. Reports on retail sales were downbeat in general, and demand for services grew at a slower pace than in recent survey periods. Manufacturing activity held up well overall, and agricultural producers reported further growth in demand and sales. Home demand and construction remained exceptionally weak, while demand for commercial real estate remained strong but showed signs of softening in some areas. Banking contacts reported little or no growth in overall lending activity and tighter credit standards for various types of loans.
Wages and Prices
District contacts reported that price inflation was modest overall. Final prices were largely stable or down slightly for a variety of retail products, selected construction materials, and some categories of professional services to businesses. By contrast, increases in the costs of energy and assorted raw materials created upward price pressures for transportation services and selected manufactured goods; for some goods, rising import prices associated with declines in the exchange value of the U.S. dollar added to upward price pressures. Prices for various foods continued to rise rapidly, with some contacts reporting inflation rates as high as 8 to 10 percent.
Upward wage pressures were moderate on net, with contacts noting only small changes in overall labor costs. Reports from several sectors, including banking and construction, indicated that slight loosening in labor markets has relieved upward wage pressures of late, although wage increases remained rapid for engineers and other skilled technical workers in many areas.
Retail Trade and Services
Reports on retail sales generally were downbeat. Sales growth has slowed for major department stores and smaller retail chains, causing increased inventories and order cancellations in some cases. Contacts generally expect holiday season sales to show at best weak growth relative to last year, and several contacts pointed to signs that price discounting is occurring earlier than normal. The primary exception to this pessimistic outlook is consumer electronics products, for which sales remained brisk. The ongoing downturn in housing markets has caused sales of household items to fall, with further significant declines reported for furniture and appliances. Sales of new automobiles remained sluggish, especially for domestic makes, and the earlier strength in demand for used vehicles softened a bit.
Demand for services grew further but signs of slowing were widespread. Providers of health-care services reported continued strong growth. However, sales by advertising agencies and providers of media services were held down by weak advertising demand from sellers of automobiles and home furnishings. Similarly, activity fell further for providers of services related to home sales, such as real estate agencies and title companies. Travel and tourism activity remained at high levels in major District markets, but conditions have cooled, with contacts from Southern California and Hawaii reporting that indicators such as visitor counts and spending are flat to down slightly relative to a year earlier.
Manufacturing
Demand for products manufactured in the District generally held steady or expanded somewhat during the survey period of October through mid-November. Production activity and sales remained very strong for makers of commercial aircraft and their suppliers. A maker of industrial equipment reported "steady" production activity and orders. Sales of information technology products remained on a moderate growth path, and contacts from that industry reported continued high levels of capacity utilization and generally balanced inventories. By contrast, demand for wood products fell further, and prices were reported to be below costs in some cases. Food manufacturers saw further robust gains in output and sales, while apparel makers reported slight weakness in orders and a desire to reduce inventories.
Agriculture and Resource-related Industries
Demand for agricultural products continued to grow, with only limited supply constraints evident. Contacts reported solid sales growth for dairy products and a variety of crops, with a substantial expansion of export sales spurred in part by the reduced exchange value of the U.S. dollar. A few reports pointed to improved labor availability and generally stable input costs.
Real Estate and Construction
The slowdown in District housing markets deepened during the survey period, while demand growth for commercial real estate generally remained strong. The glut of available homes continued in most areas of the District, keeping construction activity at very low levels and causing prices on homes sold to drop noticeably in some regions; contacts reported no signs of improvement in existing weak conditions. Mortgage availability and terms improved slightly during the survey period but reportedly remained a significant constraint on home purchases in many areas. In contrast to housing markets, construction and leasing activity in the commercial and industrial sectors has remained vibrant in most parts of the District. However, scattered reports pointed to recent signs of softening, including a sharp reduction in commercial real estate transactions since September in the San Francisco Bay Area and rising vacancy rates in Las Vegas due to substantial availability of newly built space.
Financial Institutions
District banking contacts reported that overall loan demand was largely stable. Little or no change was reported for commercial and industrial loan volumes relative to the previous survey period, except in Hawaii, Idaho, and Utah, where robust economic conditions in general supported further expansion in loan volumes. Residential mortgage lending was stuck at low levels in most areas. Credit availability and standards remained relatively restrictive for residential mortgages and construction loans, and a few reports pointed to tighter credit conditions for consumer and business borrowers in general.
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Dallas