Federal Reserve Bank of San Francisco
Summary of Economic Activity
Economic activity in the Twelfth District was stable on balance during the October to mid-November reporting period. Employment levels were largely unchanged, and employee turnover was stable in recent weeks. Wages and prices increased slightly overall. Retail sales and activity in the consumer and business services sectors held steady over the reporting period. Activity in the manufacturing sector increased a bit, while conditions in the agriculture and resource-related sectors softened slightly. Residential real estate conditions improved somewhat, and commercial real estate conditions were varied but stable. Activity in the financial services sector ticked up in recent weeks. Demand for assistance with affordable housing, health-care services, and food remained high from communities across the District. Looking ahead, contacts overall expressed slightly more optimism about economic conditions.
Labor Markets
Employment levels were little changed over the reporting period. Labor turnover was generally stable in recent weeks but remained notably down from pandemic highs. However, contacts in business services, community support services, retail, and finance continued to face lingering challenges with retention. Applicant pools for posted positions generally increased, but reports highlighted some quality mismatch between applications and job requirements. Some contacts in the real estate and services sectors indicated that hiring remained difficult for their entry-level positions as well as higher-skilled jobs in technology and construction. Several contacts noted filling jobs that cannot be done remotely remained particularly challenging. However, others in financial services and retail sectors reported no difficulty filling positions across experience and skill levels.
Wages were up slightly, similar to the prior reporting period. Wage growth was reportedly in line with historical rates across sectors, including manufacturing, finance, and real estate. Some employers facing issues in hiring or retaining staff offered higher pay, while others expanded benefit offerings and bonuses to remain competitive. One contact in Hawaii reported upward wage pressures in several industries from recent labor union contract negotiations. In contrast, one Nevada contact noted that recent settlements with labor unions helped stabilize wages in the region.
Prices
Prices rose slightly overall after being largely flat in the previous reporting period. Costs for business services ticked up, including those for health care, insurance, and new technology tools. Some firms reportedly traded down to lower quality services to obtain lower prices. Costs of materials used in production and construction, such as cement and wood products, were largely stable. A contact in food services reported price declines at some smaller quick service restaurants to compete with menu discounts offered by large chains.
Community Conditions
Communities across the District continued to report widespread shortages for affordable housing and associated increases in housing insecurity and homelessness. Demand for mental health services and food assistance programs remained elevated. Reports indicated that some employers cut back on coverage for mental health services due to recent large increases in medical insurance costs. Community organizations reported that demand for training and career development services picked up in several parts of the District, particularly in the Mountain West states. At the same time, some contacts highlighted weak enrollment figures in post-secondary educational institutions. Some nonprofit organizations reported a recent increase in funding from the public sector, particularly for programs related to sustainable growth and improving financial literacy and access.
Retail Trade and Services
Retail sales held steady over the reporting period. Most contacts reported no significant changes in overall demand and continued to note strong sales of necessities and discounted products but softer demand for discretionary items. Sales at home centers grew somewhat but remained below expectations. Retailers' outlooks for the holiday season were generally positive, with some contacts expecting sales growth over the prior season likely to be driven by online traffic.
Activity in the consumer and business services sectors remained largely unchanged in recent weeks. Demand for tourism travel was mixed, with contacts reporting rising tourism in Hawaii, stable numbers in Nevada, and a slowdown in Southern California. One hotel owner noted that, with Thanksgiving falling later in the year, the shorter season for holiday group events resulted in fewer bookings than is typical. Sales in the restaurant industry grew modestly, driven by higher prices rather than a rising number of customers. One contact reported that diners were particularly responsive to promotional items. Demand for insurance and legal services remained unchanged, and laboratory testing and medical services continued to run close to full capacity.
Manufacturing
Manufacturing activity rose somewhat over the reporting period. Demand for manufactured wood products improved slightly in anticipation of seasonal construction activity in the spring. Overall demand for new equipment ticked up in recent weeks, and the availability of raw materials reportedly normalized to pre-2020 levels. However, one contact in the capital equipment industry noted slightly weaker demand for machinery parts and accessories from developers and distribution centers.
Agriculture and Resource-Related Industries
Conditions in the agriculture and resource-related sectors weakened slightly. Across the District, tree crop production was down, while other crop yields were generally close to historical averages. Domestic demand from the food services sector remained unchanged over the reporting period, despite volatile pricing of fresh produce from areas impacted by weather events in California and Florida. California wine sales were reportedly dampened by lower demand from Asian markets. A stronger dollar and heightened competition from Europe dampened domestic lumber exports to Asia. Prices of forested lands remained high as demand continued to exceed a limited supply of land for sale. Reports mentioned that some landowners refrained from listing land for sale due to low log prices and government restrictions on harvesting.
Real Estate and Construction
Activity in the residential real estate market improved somewhat in recent weeks but remained weak overall. Demand for single-family homes outstripped supply, which remained limited. Supply of multifamily housing across the District expanded further as more units were completed, pushing down rents in some markets. Reports indicated that large homebuilders began preparing for a pickup in new construction starts in anticipation of lower financing costs over the coming months.
Commercial real estate activity varied by sector but was unchanged on balance. Office vacancies remained elevated, and leasing of newly completed office space was low. Demand for retail and industrial spaces was solid across the District, and retail leasing rates edged up slightly in the Mountain West. Commercial construction activity was generally stable, and project backlogs reportedly eased further.
Financial Institutions
Lending picked up slightly in recent weeks following several reporting periods of muted activity. Contacts highlighted some improvement in demand for commercial and industrial loans and consumer credit but noted continued weakness in commercial real estate lending. Credit and asset quality remained high overall, and liquidity was ample. Some contacts in insurance and reinsurance noted that continued increases in repair costs pushed them to exit the home and auto insurance markets.