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U.S. Federal Reserve Beige Book: San Francisco District (Text)

April 17, 2013

The following is the text of the Federal Reserve Board’s Twelfth District-- San Francisco


Economic activity in the Twelfth District expanded at a modest pace during the reporting period of late February through early April. Price increases for most final goods and services were limited, and upward wage pressures were minimal overall. Sales of many retail items rose, and most business and consumer services gained further. District manufacturing activity appeared to increase on net. Production activity and sales grew for agricultural producers. Demand for both homes and commercial real estate properties continued to expand on balance. Contacts from financial institutions reported increased loan demand.

Prices and Wages

Price increases for most final goods and services were limited. Reports were mixed for construction materials, with prices for some products such as cement, logs, and lumber edging up further; meanwhile, prices for some other metal and wood products were mostly flat. Contacts from retail grocery and restaurant chain establishments reported largely constant food prices as the prices of some of the underlying commodities have stabilized. Health-care price increases were limited, and fees for legal services held steady.

Contacts reported that wage gains were contained across most occupations, industries, and regions in the District. Restrained hiring plans and ready worker availability have held down increases in wages and compensation for most sectors and regions. A shortage of trained engineers continues to prompt vigorous employer competition and significant compensation gains for this group across a number of industries. In a few areas experiencing significant rebounds in housing market activity, wages of construction workers and experienced mortgage underwriters have risen. Contacts mentioned downward pressure on the wages for some low-skilled jobs and government employees. Most firms expect wage growth between 2% and 4% this year.

Retail Trade and Services

Retail sales rose on balance. New and used automobile sales remained at high levels. Among computer and electronic products, sales of personal computers remained weak relative to sales of mobile computing devices, including smart phones and tablets. Demand for some gaming products and apparel picked up, with e- commerce sales growth for these items outpacing sales growth at traditional retail stores. Retail grocers reported soft sales, experiencing intensifying competition from discount and online retailers. Demand was steady for retail pet products.

Demand for most business and consumer services gained. Contacts expect more robust growth this year for various technology services, such as cloud computing and data processing, compared with modest gains at the end of last year. Food service providers reported strong sales on net, with some discount chains faring particularly well. Activity in the District’s travel and tourism sector advanced, as visitor counts, expenditures, and occupancy rates climbed in Hawaii; however, reports indicated weaker activity in Southern California in recent weeks. Contacts in the health-care industry described plans to freeze hiring and scale back capital expenditures in response to the federal spending cuts.


District manufacturing activity appeared to step up during the reporting period of late February through early April. Contrary to downbeat expectations from earlier in the year arising from product release challenges, production activity for commercial aircraft and parts continued to grow robustly. Manufacturers in defense-related subsectors noted furloughs, layoffs, and plant closures at some production facilities. Reports indicated that inventories of semiconductors fell at the end of last year but remain roughly in line with current demand. Pharmaceutical goods producers reported modest gains. Wood product manufacturers stated that demand grew further, fueled both by recent rebounds in domestic residential construction activity and demand from China. Demand for steel products used primarily in transportation infrastructure and nonresidential construction projects increased, although overall capacity utilization for steelmakers remained at a relatively low level.

Agriculture and Resource-related Industries

Agricultural producers noted increased sales and production activity. Demand for most crop and livestock products grew further. Agricultural producers faced mostly stable or somewhat lower petroleum-based fuel and natural gas costs. Supplies of most raw materials were adequate. However, some contacts communicated concerns that volatile weather conditions and limited water availability in parts of the District could pass through to lower seasonal hiring and reduced agricultural output in coming months. Reports indicated that electricity and natural gas sales remained strong for both households and businesses, and natural gas inventories declined a bit further.

Real Estate and Construction

Activity in residential and commercial real estate markets continued to gain momentum, with notable gains in selected locales. Home sales climbed further in most regions, and low inventory levels coupled with healthy demand supported stable or increasing prices. Reports indicated that the pace of residential housing permit issuance increased significantly in many regions throughout the District. Rental activity for both single-family and multifamily homes was strong, based on low vacancy rates and stable rental rates. Construction of multifamily residential projects expanded further. Commercial real estate development and leasing activity increased, particularly in major metropolitan areas across the District, fueled in large part by sustained growth in the technology sector.

Financial Institutions

Contacts from financial institutions reported that loan demand improved. Ramped-up mortgage and automobile lending continued to spur growth in overall loan demand. Banking contacts again highlighted ample liquidity and generally stiff competition among lenders for well-qualified business borrowers. Contacts also pointed to a recent buildup of privately held technology companies poised for public offerings. Despite the clear potential for action, the pace of initial public offerings and new venture capital deals in the District’s Internet and digital media subsectors has been relatively slow. By contrast, private equity financing has shown steady growth in recent months. Reports indicated modest improvement in credit quality for both business and consumer loans.

SOURCE: Federal Reserve Board

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