Beige Book Report: San Francisco
November 29, 2023
Summary of Economic Activity
Twelfth District economic activity softened slightly during the October to mid-November reporting period. Labor market tightness eased moderately, and employment levels remained generally steady. Wages and prices rose at a slower pace relative to the previous reporting period. Retail sales were flat, and activity in the services sectors picked up slightly. Demand for manufactured products remained largely unchanged, while conditions in agriculture and resource-related sectors were mixed. Residential real estate activity softened, while activity in commercial real estate was varied. Conditions in the financial sector weakened further, and lending standards remained tight. Communities across the Twelfth District saw continued high demand for support services that was harder to meet due to declining charitable donations. Contacts expressed concern over a weaker economic outlook and increased overall uncertainty.
Labor Markets
Labor market tightness continued to ease over the reporting period. Many employers reported improved availability and retention of workers in recent weeks as well as an uptick in job applications. Some employers, citing an uncertainty over the economic outlook, held staffing levels steady and only filled positions that opened up due to turnover. Employers in industries, such as legal services and aerospace, expanded their workforce in recent weeks, while some in manufacturing and financial services reported reductions in staffing. Nevertheless, employee turnover was reportedly elevated in hospitality and manufacturing. Several contacts expected the recent tentative agreement surrounding strike actions in the entertainment industry will bring back a significant number of workers in coming months.
Wage growth moderated across sectors as imbalances in labor market conditions for supply and demand continued to improve. Contacts reported budgeting annual pay raises in line with pre-pandemic rates. Recent layoffs in the financial services sector reportedly put downward pressure on wages within the sector. Wage pressures remained high for employers in legal services and some high-skilled trades across sectors. Some contacts highlighted upward wage pressures from the increases in minimum wages happening locally and ongoing labor union negotiations.
Prices
Prices remained elevated but rose at a slower pace relative to the previous reporting period. The recent drop in energy prices and signs of potential tapering overall demand growth helped alleviate some price pressures in recent weeks. Several contacts reportedly reduced fees for professional services in response to lower demand. Still, material and insurance costs continued to rise. In some instances, these costs were passed on to consumers, although one contact observed some pushback from customers to higher menu prices. Real estate firms noted that higher input, building, and loan costs adversely impacted new construction projects.
Community Conditions
Community and support organizations continued to report strained resources and elevated demand for services. Higher numbers of individuals across the District sought support for housing, health, and mental health services. Demand at food banks also increased. Charitable donations by corporations and households declined further, though assistance from government funding aided some nonprofit organizations. At the same time, support organizations reported higher expenses, including for insurance and business software. Small businesses in urban areas were challenged by high borrowing costs along with weaker consumer demand while widespread remote or hybrid work arrangements continued.
Retail Trade and Services
Retail sales were flat overall in recent weeks. Reports suggested some pullback in consumer spending on big-ticket items, such as motor vehicles. Demand was stronger for some product categories, such as groceries, fresh produce, and seafood. Retailers expected a solid holiday shopping season but noted that more discounts and offers than last year will be needed to entice consumers. Contacts in Alaska and Hawaii mentioned that despite a recent push to support local and small businesses, consumers still prefer online shopping during the holiday season.
Activity in consumer and business services picked up slightly. Demand for leisure travel increased in recent weeks and was expected to rise further for the holiday season. Businesses across southern Nevada, particularly in leisure and hospitality, experienced unusual growth in the weeks leading up to the Formula One Grand Prix event in Las Vegas. Business demand for information technology, custodial, and security services increased, while demand for consulting services was down. Several contacts expected the end of strike actions in the entertainment industry to spur growth in the Southern California economy, although some feared that many local businesses and services providers would be unable to recover losses for an extended period.
Manufacturing
Manufacturing activity was unchanged at robust levels in recent weeks. Manufacturers reported continued general strength in the sector and solid demand for heavy machinery, capital equipment, and fabricated metal products. The aerospace industry reportedly saw an uptick in orders in recent weeks. Food manufacturing and packaging continued to operate at or near capacity. Reports indicated continued improvements in raw materials availability and supply chains, although some manufacturers mentioned lingering delivery delays.
Agriculture and Resource-Related Industries
Conditions in the agriculture and resource-related sectors were mixed. Across the District, crop yields were generally at or above historical averages, particularly for apples. Domestic demand from the food services and retail sectors was solid but showed some signs of easing in recent weeks, and exports for some products such as nuts rose. Producers commanded lower prices for products such as fish and nuts and expected apple prices to fall due to the strong harvest. Costs for fuel, packaging, labor, and equipment rose, while irrigation and international shipping costs declined. One contact in Utah cited notable reductions in the cost of feeding livestock as ample growth of grasses on grazing lands lowered demand and prices for hay.
Real Estate and Construction
Conditions in the residential real estate sector softened further over the reporting period. Asking and selling prices for single-family homes declined as buyers were deterred by high mortgage rates, and demand from first-time homebuyers was particularly weak. Inventories remained low, and properties took longer to sell. Contacts reported slight softening in the multifamily sector with lower occupancy rates in some downtown high-rise buildings and slower rent growth. In contrast, a Southern California contact noted continued strong demand for affordable multifamily units. New residential construction was stable, while renovation construction rose as homeowners sought to modify existing homes rather than buy new ones.
Commercial real estate activity was varied in recent weeks. Office leasing activity was muted, and occupancy rates remained low. In contrast, demand for space in sectors less conducive to remote work, such as defense and lab-based sciences, was robust and occupancy rates were high. Elevated financing costs and economic uncertainty slowed commercial construction projects. A contact in Utah reported that construction continued as planned on existing industrial projects, but that rent growth in this sector began to ease.
Financial Institutions
Lending activity weakened further in recent weeks. High financing costs pushed more firms to delay or cancel projects and planned investments. Demand for mortgages remained muted as higher rates and limited supply continued to constrain the housing market. In contrast, consumer lending was solid, and reports indicated an uptick in demand for new credit cards and lines of credit despite the increase in rates and fees. Competition for deposits remained brisk, lending standards remained tight, and credit quality was strong.