July 12, 2023
Summary of Economic Activity
Economic activity in the Twelfth District softened modestly during the mid-May through June reporting period. Labor availability improved and overall labor market conditions eased moderately. Price increases persisted, while wage growth slowed notably across several sectors. Retail sales moderated, and activity in the services sectors eased somewhat. Demand for manufacturing goods was solid but weakened slightly, while conditions in agriculture and resource-related sectors were mixed. Residential real estate activity was mixed while that of commercial real estate eased further. Conditions in the financial sector remained generally unchanged over the reporting period and lending standards continued to tighten. Communities across the Twelfth District were challenged by a lack of affordable housing and small businesses' limited access to credit. Contacts expressed concern over a weaker outlook for the economy and increased overall uncertainty.
Labor Markets
Labor market conditions eased moderately during the reporting period. Labor availability improved, and employers across sectors reported receiving more job applications in recent weeks. Contacts highlighted that hiring for permanent, full-time positions was reportedly easier than for contract-based or part-time roles. In addition, hiring challenges persisted in health care and hospitality, where demand for workers continued to outstrip supply. Employee turnover generally improved but remained above pre-pandemic levels in retail and consumer services. Layoffs continued, albeit at a slower pace, in the financial services and technology sectors. Staffing levels in other sectors were generally steady, but employers adjusted their future hiring plans in response to overall economic uncertainty. Employers facing moderating demand favored reducing staff hours over layoffs.
Wage growth slowed notably across several sectors. Improved labor availability led to wage increases closer in line with historical rates, particularly for entry-level positions, in construction, manufacturing, retail, financial services, and technology. In contrast, contacts continued to report paying above-average salaries for experienced and skilled workers in consumer and business services. In addition to higher pay, some employers offered expanded benefits, training, and advancement opportunities to attract and retain workers.
Prices
Price increases persisted at a steady pace relative to the last reporting period. Reports noted elevated inflation across several industries and products, including utilities, insurance, used vehicles, health care, pet care, and some construction materials, such as aluminum, concrete, and electrical equipment. However, prices of some goods and services were reportedly stable or down in recent weeks, including those for gasoline, fabricated materials, and banking services. One manufacturer reported significant reductions in input costs in recent weeks but also noted not planning to lower final prices because of the cumulative cost pressures incurred over the past three years.
Community Conditions
Conditions in the community support and services sector remained mixed. Some contacts in education, housing services, and community support reported stable or improving conditions for funding and hiring. At the same time, representatives from small businesses and community banks mentioned more limited availability of funds. Contacts across the District reiterated difficulties meeting the demand for support services, and several continued to report the persistence of housing insecurity and homelessness. Contacts in Alaska highlighted ongoing shortages of police services and childcare providers.
Retail Trade and Services
Overall retail sales moderated in recent weeks. Fading fiscal stimulus at the state level and reduced excess savings reportedly weakened retail spending. Consumers continued to trade down to lower cost items and reduced their spending on nonessential goods. Contacts from Hawaii and Utah indicated strong demand for retail and services supported by robust growth in tourism and population levels. Additionally, online retail demand picked up with higher sales to consumer markets in Asia.
Activity in the consumer and business services sectors eased somewhat. Demand for business and leisure travel in the District moderated despite the number of visitors and conventions remaining largely unchanged in recent weeks. Spending on legal and insurance services declined. Production activity in the entertainment and media industries remained strained by ongoing collective agreement negotiations between the writers' unions and major studios. Additionally, art galleries and institutions reported facing significant headwinds due to smaller audiences and declining donations.
Manufacturing
Manufacturing activity weakened slightly but remained solid overall. New manufacturing orders for apparel, electronics, and furniture softened, while demand for capital equipment, aerospace, and wood products strengthened. Conditions in metal production and the recycling industry remained largely unchanged. Capacity utilization inched down, consistent with overall lower demand. Shipping and some input costs decreased over the past few weeks as supply chains and availability of raw materials continued to improve.
Agriculture and Resource-Related Industries
Conditions in agriculture and resource-related sectors were mixed. Expanded ocean freight capacity and lower shipping costs supported exports, but lingering backlogs, the war in Ukraine, and a strong dollar limited access to some international markets. Domestic retail demand for agricultural products softened and demand from the food services sector plateaued. Demand for timber rose. Produce yields across the District were broadly up, recovering from the wet winter and spring. However, inventories of some foods such as raisins and nuts declined. Major seafood stocks edged up. Rising labor and insurance costs put upward pressure on production expenses, while past rains somewhat offset irrigation costs. One contact noted that ongoing capital investments helped boost productivity and curtail labor costs in the agriculture sector.
Real Estate and Construction
Residential real estate activity was mixed in recent weeks. Demand for single-family homes was reportedly strong, but low inventories and high mortgage rates limited sales. Demand for multifamily housing remained solid, though a contact in Southern California noted that it has recently taken longer to rent out apartments. Rental rates edged up. Contacts across the district reported a slowdown in new construction, particularly for single-family homes, citing uncertainty over the economic outlook and high financing costs. The availability of materials continued to improve somewhat, though shortages persisted.
Activity in the commercial real estate market was down on balance. Limited credit availability reduced demand for commercial space and curtailed construction slightly. However, contacts in Utah reported strong construction activity for industrial and retail spaces. Rental rates for industrial space reportedly plateaued, largely due to weaker demand amid ongoing economic uncertainty, while rents for retail space edged up. The office sector remained weak. One Northern California contact noted that muted brick-and-mortar sales, high operating costs, and safety concerns limited leasing demand for downtown office space.
Financial Institutions
Conditions in the financial sector remained generally unchanged over the reporting period. Loan demand was largely stable but some contacts at regional institutions reported slower loan origination in recent weeks, especially those focused on the residential and commercial real estate markets. Banks have reportedly faced less variance in deposit flows compared to the previous reporting period despite strong competition for deposits. Lending standards tightened, and credit quality remained strong despite some observed increase in delinquency rates. Reports also noted lingering liquidity concerns and general uncertainty both over the economic outlook and within the sector.