Summary of Economic Activity
Economic activity in the Twelfth District edged down slightly during the July to mid-August reporting period. Employment levels were down slightly as employers laid off workers and did not fill vacated positions. Wages grew somewhat, and prices rose modestly overall. Conditions in retail trade and the consumer and business services sector weakened slightly. Manufacturing activity declined modestly, and conditions in agriculture and resource-related sectors were somewhat weaker. In both residential and commercial real estate, activity was slow but unchanged. Financial sector conditions were stable. Community support organizations struggled to balance the continued demand for services against declines in funding. Looking ahead, contacts’ economic outlook weakened some relative to the prior reporting period.
Labor Markets
Employment levels fell slightly in recent weeks. Employers lowered head counts through layoffs, hiring freezes, and attrition. While some businesses turned to automation technologies to maintain output levels and reduce costs, others curtailed operating times, which reduced employee hours. However, several contacts in finance and food services expanded their workforce to staff new locations. Labor availability and applicant quality rose as regional pools of workers applying for jobs expanded. However, some contacts reported that businesses in agriculture and construction had difficulties filling positions due to constrained labor supplies from changes in immigration policy.
Wages were up somewhat in recent weeks, as in the prior reporting period. Contacts reported that increases were in line with or below the rate of inflation. Wages were largely flat in finance, retail, nonprofits, and manufacturing, while in other industries, such as health care, education, and leisure and hospitality, wages were up slightly.
Prices
Price levels rose at a modest rate, similar to the previous reporting period. Prices were higher across a range of product categories such as insurance, retail and grocery items, and manufactured goods. In contrast, prices for some building materials, such as lumber and roofing, declined, driven by slower demand from the construction sector. Prices of most inputs increased, including business IT and security services, animal food products, and materials such as steel and aluminum. Contacts attributed price pressures to the tariffs on imported inputs and high demand for limited quantities of domestically produced components. In many instances these price increases were at least partially passed on to customers. However, in some instances, such as in food services and accommodations, weaker consumer demand led companies to absorb the higher costs.
Community Conditions
Community and support organizations continued to report elevated demand for services and limited funding, similar to the previous reporting period. As a result, organizations found it more challenging to fulfil needs for housing, food assistance, and health care. The start of the school year raised demand across the District for assistance in obtaining school supplies. Cuts in federal grants and corporate funding were reportedly more pronounced in nonprofits working with underrepresented populations or environmental groups. One contact noted that nonprofit organizations offering legal support had an easier time attracting and hiring law students who previously gravitated towards more conventional legal sector jobs.
Retail Trade and Services
Conditions in retail trade weakened somewhat in recent weeks. Contacts reported that higher prices reduced demand for many consumer goods including groceries, fresh produce, and pet supplies. Additionally, unfavorable weather in parts of the District held home centers’ sales down. In contrast, demand for athletic footwear and apparel remained strong. Several contacts across different retail sectors phased in price increases as old inventories were sold and replaced with goods subject to tariffs. Retailers expect additional price increases as this phase-in continues.
Activity in consumer and business services eased slightly. Demand for business consulting remained weak as clients continued to put discretionary projects on hold. Conditions in tourism and hospitality deteriorated further. In California and Nevada, contacts reported notably fewer international visitors and reduced demand from business travelers, particularly from the government and nonprofit sectors. However, one contact from the Pacific Northwest noted a pickup in tourism activity in the region due to several major entertainment events and milder weather this summer. Demand for legal services and medical testing remained solid. Service providers highlighted efficiencies gained through adopting GenAI tools that help with interpreting medical tests in health care, auditing records in business consulting, and creating marketing materials across the board.
Manufacturing
Manufacturing activity declined modestly in recent weeks. Demand for manufactured goods, such as furniture, utility sector components, and manufactured wood products, generally weakened. Nonetheless, an automation equipment manufacturer experienced higher demand as some clients were willing to resume investments previously put on hold due to economic uncertainty. Additionally, some businesses started new investments in automation in response to stricter immigration policies that reportedly constrained labor supply.
Agriculture and Resource-Related Industries
Conditions in agriculture and resource-related sectors softened slightly. Contacts attributed lower exports of agricultural products to tariffs and dollar appreciation. Producers continued to turn to domestic markets to sell their products, increasing supply and lowering selling prices. Domestic sales were largely solid, but one Northern California contact observed slightly softer demand for some produce and nuts. Lower prices for agricultural products caused some growers to sell below cost, weakening their financial position. This development prompted concern from lenders, and some borrowers faced immediate loan repayment requests. Yields for crops such as nuts, fruits, and vegetables were above average, and inventories from past harvests were stable. Costs were up for labor, raw materials, and financing. One contact noted that processing tariff-related paperwork raised administrative expenses for their business.
Real Estate and Construction
Residential real estate activity was largely unchanged from the last reporting period and remained subdued overall. High mortgage rates and increasing costs for insurance and property taxes constrained demand for single-family homes. Builders offered more incentives to buyers, and some contacts observed a slight moderation in sale prices. Demand for multifamily rentals remained solid, but excess supply kept rents stable in some areas. Residential starts overall remained slow because of high construction and financing costs and concerns about availability of materials.
Commercial real estate activity was unchanged and remained slow. Leasing demand was subdued as many businesses continued to postpone decisions about space needs due to slowing consumer demand and elevated costs. However, a Southern California contact noted an uptick in leasing demand as expiring contracts forced some to make decisions about what space to lease. Commercial construction was slow overall but somewhat offset by continued work on large institutional and government projects in some regions. Reports highlighted that project starts were delayed due to elevated financing costs and tariff-related concerns, such as the availability and cost of materials. Still, some contacts observed that with fewer available projects, competition increased among contractors and put downward pressure on prices of labor and materials in bids.
Financial Institutions
Lending activity was stable over the reporting period. Demand continued to be soft for consumer credit and for small business and construction loans. However, a few bankers from the Pacific Northwest reported a slight uptick in auto and business loan demand. Several large construction projects in Alaska boosted demand for commercial loans in that region. Deposit inflows were subdued, and deposit rates grew somewhat. Credit and asset quality remained stable.
Visit the Federal Reserve Board of Governors’ Beige Book page for the national summary, reports from all 12 Districts, and archives dating back to 1996.
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