Summary of Economic Activity
Economic conditions in the Twelfth District were mixed during the October to mid-November reporting period. Employment levels largely held steady as most employers hired primarily to replace voluntary departures. Wages rose somewhat, and prices were up modestly. Activity in retail trade, agriculture, and residential real estate eased slightly while activity in services and commercial real estate remained largely unchanged on balance. Manufacturing activity was mixed. Lending activity strengthened marginally. Conditions in community support organizations and small businesses worsened somewhat. Contacts’ economic outlook was little changed over the reporting period.
Labor Markets
Employment levels largely held steady over the reporting period. Most contacts reported no major changes to their head counts and hired primarily to replace retiring workers and voluntary departures. Overall turnover was low. While layoffs occurred in some industries, including technology, banking, community services, and entertainment, hiring increased in some sectors including manufacturing and health care. Employers received more applications for open positions and generally found it easier to hire. Nonetheless, finding applicants with specific skills continued to be challenging for some positions in legal services, manufacturing, and skilled trades. Employers focused on finding efficiencies and increasing productivity, including by using artificial intelligence (AI) technologies. One contact in agriculture highlighted increased difficulties in hiring workers due to immigration visa revocations.
Wages rose somewhat in recent weeks, similar to the previous reporting period. Wage growth was in line with historical average rates, as upward pressures weakened somewhat due to slower hiring and plentiful applications to open positions. Nonetheless, upward wage pressures persisted in child care, hospitality, and quick service restaurants, related in some cases to return-to-office mandates. Higher local minimum wage requirements or recent labor union contract negotiations contributed to wage pressures in some areas.
Prices
Prices were up modestly, at a similar pace to the prior reporting period. Contacts reported higher costs for supplies and inputs, including food, beverages, retail merchandise, chemical products, shipping, insurance, and technology services. In some cases, higher costs were directly attributed to import duties. Retailers and entertainment venues reported passing cost increases on to consumers. Some manufacturers, contractors, and hoteliers chose to absorb higher costs or even decrease prices in some cases. Rates for air travel were reportedly stable, while prices for wallboard, asphalt, and some other building materials fell. Contacts in agriculture mentioned that prices for hay and fertilizers also decreased.
Community Conditions
Conditions for community support and services organizations worsened this reporting period. Demand increased for food assistance in particular, which a number of contacts attributed to the government shutdown and reductions in SNAP benefits. Inventories at some food banks were strained by the increase in demand. Funding constraints continued to curtail organizations’ abilities to meet demand. One contact noted that the funds nonprofits receive from their thrift stores declined. Closures by small businesses, particularly retail and restaurants, continued as owners faced higher costs for insurance, utilities, and labor. Conditions in higher education varied. One contact reported higher enrollment numbers across four- and two-year institutions, while another reported cuts to funding and programs.
Retail Trade and Services
Retail activity decreased further, at a similar pace to the previous reporting period. Inventory levels and capacity utilization were adequate to meet demand. Retailers and grocers observed lower discretionary spending, in part because consumers switched to lower-cost alternatives and were more conservative with holiday spending plans. Sales at home centers were stable. Spending at tourist destinations and shopping centers across the District was mixed. Retailers generally expected holiday sales to be comparable to or slightly lower than last year’s holiday season sales. One contact mentioned that demand for athletic apparel was poor while footwear sales were more robust.
Conditions in the consumer and business services sector were largely unchanged on net. Consumers at the lower end of the income distribution continued to reduce their discretionary spending, including on full-service restaurant dining, elective health care, entertainment, and beauty and personal services. Demand at quick service restaurants grew on net amid an ongoing shift toward greater-value options. Demand from consumers at the higher end of the income distribution was resilient. Travel and hospitality conditions varied across the District depending on location: weaker in Southern California, stable or slightly improved in Alaska and Hawaii, and mixed in Nevada. Air traffic volumes were down due to a variety of factors, including usual seasonality, extreme weather events, and the government shutdown.
Manufacturing
Manufacturing activity was mixed over the reporting period. While demand picked up for furniture and automated packaging equipment, manufactured wood product demand remained weak due to a slow construction environment. Manufactured food product sales were generally stable. Reports highlighted increasing costs for raw materials. One Pacific Northwest manufacturer noted that suppliers’ prices rose at a faster pace than what they felt comfortable with passing on to clients.
Agriculture and Resource-Related Industries
Conditions in agriculture and resource-related sectors weakened somewhat. Demand for crops from domestic markets was largely stable. Demand for logs fell as mills that process logs into lumber cut back production. Demand for wine grapes fell both domestically and internationally, and weaker dairy markets in Asia and a generally strong dollar lowered hay exports. Production of commodity crops, such as grains, soybeans, and potatoes, exceeded demand, holding down prices received by growers. Generally cooler weather in California improved the quality of produce harvested. Costs for growers and producers continued to increase, including for labor, materials, and financing. Cattle prices fell slightly but remained above prices that processors received for beef products, creating some financial strain. One contact reported that seasonal labor shortages in Hawaii led growers to leave some crops unpicked.
Real Estate and Construction
Activity in the residential real estate market eased slightly. In the single-family market, properties stayed on the market longer as demand softened. Multifamily rents were largely stable, and one contact observed fewer concessions from landlords. New residential construction and renovations remained subdued overall, resulting in lower demand for construction materials like lumber and roofing. One contractor in the Mountain West partly attributed the limited activity to funding constraints for building ancillary infrastructure, such as roads and sewers.
Conditions in commercial real estate were largely similar to those in the prior reporting period. Rent increases were reportedly in line with inflation for retail and industrial space, while rents in the office sector were stable. New commercial construction remained concentrated in new data centers and projects for education, health, and government, and more limited in other sectors. Several contacts noted some cost declines in construction projects due to competition among bidders.
Financial Institutions
Conditions in the financial sector strengthened marginally over the reporting period. Consumer demand for mortgages and auto loans slightly softened, while utilization of credit cards rose. Loan demand expanded from commercial borrowers, particularly those in some commercial real estate categories. Deposit flows were stable on net, and deposit rates became more competitive. Credit and asset quality remained high, and the prevalence of delinquencies remained generally low.
For more information about District economic conditions visit Twelfth District Beige Book.
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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