Advisory Council Observations: The SF Fed’s Advisory Councils Provide Insights about the Twelfth District’s Economy

Person checking the bill when paying at a supermarket

The SF Fed maintains three advisory councils: the Community AdvisoryEconomic Advisory, and Community Depository Institutions Advisory Councils. The members of these councils represent businesses, financial institutions, and community organizations across the Twelfth District.

We regularly convene these councils to discuss the Twelfth District’s economy. The members bring valuable perspectives from around the District to the SF Fed.

We have created Advisory Council Observations to share what we have learned. The series will summarize recent insights about Twelfth District economic conditions contributed by our councils.

Our advisory councils are important sources of insights about the Twelfth District’s economy. Each council has a specific focus. The Economic Advisory Council (EAC) provides observations about the district’s general economic and business conditions while the Community Advisory Council (CAC) concentrates on the economic experiences of underserved and lower-income communities. The Community Depository Institutions Council (CDIAC) shares information about the ability of community depository institutions to support local markets across the District. Meeting twice-yearly, the councils’ discussions are attended by President Mary Daly and other leaders from the Bank’s Executive Leadership Team, and the Economic Research, Public Engagement, and Supervision + Credit groups.

During the most recent meetings in Fall 2023, President Daly noted that there are signs that the economy is moderating even as consumer spending remains strong and the labor market remains tight. Against this general background, President Daly and the other SF Fed representatives asked council members about evolving demand conditions. They were interested in labor market conditions and the ease or difficulty faced by people seeking work. Participants were also asked to reflect on credit availability both for consumers and businesses.

Economic Advisory Council

Members of the Economic Advisory Council reported that economic activity has expanded in recent months. Council members observed that the labor market remained tight despite gradual easing. They noted that prices and wages both rose, but at slower rates than seen earlier in the year. In addition, they shared that indications from various industries pointed to an easing of supply bottlenecks and a significant improvement in product availability and delivery times.

Council members attributed the general strength of the economy to a number of factors. First, they observed that consumer demand has remained strong for a broad set of services. The participants felt this was especially true for recent household spending on leisure travel, lodging, and restaurants. Second, they shared that business spending and investment have also seen continued momentum in recent months. Council members noted that demand for software and information technology services picked up, and demand for custodial, security, and janitorial services remained elevated. A council member from the Pacific Northwest mentioned that commercial construction activity was robust despite limited lot availability in urban areas, while ongoing infrastructure spending kept the pipeline for new projects well supplied.

Despite this overall positive assessment, the council members did identify some areas of concern. They noted that activity in real estate markets was muted on net, although persistent imbalances in housing supply and demand continued to drive new construction in some areas. Participants felt that consumers, particularly those at the lower end of the income distribution, have increasingly relied on credit card debt to fund their purchases. Many members expressed concern about escalating geopolitical tensions around the globe and highlighted related possible energy supply issues in the coming months. Council members also noted the unknown impact of recent rapid advancements in generative artificial intelligence technologies on production and employment in various industries.

Even with these potential headwinds, the members expected continued growth in economic activity and further easing in price inflation.

Community Advisory Council

A major focus of the Community Advisory Council meeting was the condition of the labor market. Council members noted that overall demand for workers remained high across the economy.

There were some notable exceptions. A council member who surveyed staffing agencies reported that there was weakness in the tech sector, where demand for employees was soft. In addition, they shared that the survey revealed that African Americans faced more difficulties finding employment than other racial and ethnic groups.

Among the fields with particularly robust demand for workers, the council members pointed to construction and other sectors that depend on skilled trades.

Participants reported that businesses were trying varying strategies to attract more workers, including launching recruitment efforts in high schools and colleges, and paying for on-the-job training.

Council members highlighted the high cost of child care as one of the most significant barriers to finding workers. For the skilled trades, they said that the expense of child care made it difficult to recruit new workers as people who were just starting their training found it hard to pay the rising costs. Members highlighted that many lower-wage workers, especially those with roles in hospitality and caregiving, face challenges finding child care for the hours they need given their irregular work schedules. Participants also raised housing as a barrier to economic development, where a lack of affordable housing in parts of the district makes it challenging to attract workers.

When asked about credit availability, the participants agreed with the SF Fed’s assessment that credit is tightening. Focusing on small businesses, some participants noted that credit card debt for smaller companies is rising. They noted that for very small businesses people comingle personal and business credit, and felt that the possibility of defaulting on this debt represented a risk for local economies.

Community Depository Institutions Advisory Council

The commercial real estate sector has been an area of interest for the SF Fed; the bank conducted two roundtables in 2023 with industry leaders to discuss CRE market conditions. This was also a topic of discussion for the CDIAC’s members. Participants noted that while CRE concentrations are high, the risk is mitigated by more stringent underwriting and capital standards. They also highlighted the difference between national trends and what is taking place in the Twelfth District. Specifically, they felt that CRE portfolios in rural areas have proven more resilient than urban areas and they shared that there is a degree of differentiation in how urban CRE markets have fared. Council members noted Honolulu and Las Vegas as two cities with well-performing markets for commercial properties.

Council members shared their view that the recent modernization of the Community Reinvestment Act (CRA) will have a significant effect on community depository institutions. Members noted that they will need to dedicate additional resources to adhere to the new regulations. Participants also discussed the use of the Federal Reserve’s Discount Window.

The final discussion topic was the industry’s evolution. In the current higher rate environment, council members reported that they are focused on remaining diversified. They are more cautious about growth plans. At the same time, they reported they have ample liquidity and are holding additional cash as a hedge against uncertainty.

Members felt the current situation is mixed. Not all of the institutions represented on the council were lending at the volumes they would like because of a dearth of qualified borrowers. Others reported that they were seeing indications that customers had adjusted to higher interest rates and were now prepared to move forward with projects.

The Value of On-the-ground Information

When describing our work to advance the nation’s monetary, financial, and payment systems, we often say that the SF Fed is data-dependent. Before making important monetary policy decisions, we look carefully at the most recent economic statistics and indicators. Importantly, we don’t just define data as numbers. We also find key data points by working to understand the economic conditions in the communities we serve by engaging community and business leaders. Thanks to the insights they provide, we are better able to fulfill our mission to build a stronger economy for all Americans. That’s the value of on-the-ground information.

The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.