TWELFTH DISTRICT-SAN FRANCISCO

Economic activity in the Twelfth District continued to expand
modestly during the reporting period of mid-July through the end
of August. Upward price pressures were mixed but appeared to
ease overall, and upward pressures on wages were subdued. Demand
for retail items edged up on balance, as did demand for business
and consumer services. Manufacturing activity in the District
grew a bit further. Demand remained robust for agricultural
producers but fell slightly for providers of energy resources.
Activity in District housing markets stayed sluggish, and demand
for commercial real estate was largely unchanged. District
banking contacts indicated that overall loan demand was stable
or inched down.

Wages and Prices

Upward price pressures were very limited on net during the
reporting period. Further modest price declines were noted for
energy inputs and some raw materials. Stiff competition among
domestic firms, combined with weak final demand, resulted in
largely stable prices for most categories of final goods and
services. The primary reported exceptions were clothing and
medical care, for which recent cost increases were passed
through to final prices.

Upward wage pressures were largely nonexistent, as compensation
gains were held down by high levels of unemployment and limited
demand for new hires. As a result of uncertain product demand,
businesses in most sectors expect to remain highly cautious in
regard to hiring for the foreseeable future, suggesting that
compensation pressures are likely to remain subdued. However,
contacts continued to report significant upward wage pressures
for workers with advanced skills in technology fields.

Retail Trade and Services

Retail sales were mixed but rose a bit overall. For general
merchandise such as apparel and smaller household items,
contacts reported modest improvements in sales, with stronger
performance for traditional department stores than for discount
chains. By contrast, retailers of major appliances and furniture
reported weaker demand resulting from a renewed sense of caution
on the part of consumers. Grocery sales were largely flat. Sales
of new automobiles improved somewhat, despite ongoing shortages
of parts and assembled vehicles for some brands arising from the
natural disaster in Japan earlier this year. The demand for used
vehicles continued to firm, with contacts noting rising sales
and additional upward pressure on prices and trade-in values.

Demand for business and consumer services continued to
strengthen overall. Sales expanded further for providers of
technology services, as consumer demand for software, e-books,
and mobile applications continued to grow. Providers of
professional services such as law and accounting reported that
demand was little changed from the prior period. Similarly,
demand for transportation services was characterized as largely
flat. For energy utilities, demand waned a bit during the
beginning of the reporting period but improved later. Providers
of health-care services reported that demand strengthened
somewhat. Conditions in the District’s travel and tourism
industry improved further, with demand growth reported for the
business and tourism segments alike.

Manufacturing

District manufacturing activity was mixed but appeared to grow
slightly during the reporting period of mid-July through the end
of August. Although manufacturers of semiconductors and other
technology products reported slower growth for new orders and
sales, capacity utilization rates remained high and inventories
were near desired levels given the pace of sales. For makers of
commercial aircraft, significant increases in new orders for
narrow-body aircraft combined with an existing order backlog to
keep production rates near capacity. A metal fabricator noted
that sales were “steady but slow” and raw materials were readily
available. Petroleum refiners reported slightly weaker demand
and capacity utilization rates that were largely stable, causing
product inventories to rise somewhat. Demand held at very low
levels for manufacturers of wood products.

Agriculture and Resource-related Industries

Demand grew further for agricultural products and metals but was
down slightly for natural resources used for energy production.
Orders and sales continued to expand for a wide variety of crop
and livestock products, especially cattle and cotton. Contacts
noted that agricultural input costs have stabilized following
significant increases in the spring. Rising sales prices for
assorted metals spurred further increases in mining activity in
parts of the District. Overall demand for crude oil weakened a
bit, primarily reflecting weaker domestic demand, but extraction
activity for natural gas was largely unchanged.

Real Estate and Construction

Demand for housing and for commercial real estate was little
changed from existing low levels. Although the reports pointed
to scattered signs of improvement in the entry-level and high-
end segments of the District’s housing markets, the pace of home
sales and construction remained depressed. By contrast, demand
for rental space continued to grow, enabling landlords to
increase rents and scale back tenant concessions in some areas.
Demand for commercial real estate remained weak overall, and
vacancy rates for office and industrial space stayed elevated
throughout the District. Conditions were mixed across geographic
markets, with deterioration in leasing activity for some areas
contrasting with ongoing improvements in areas that have
benefited from growth in the technology sector, such as the San
Francisco Bay Area and Seattle.

Financial Institutions

Reports from District banking contacts indicated that loan
demand was largely stable to marginally down compared with the
prior reporting period. Citing heightened levels of uncertainty,
some businesses showed a reduced desire to engage in
expansionary capital spending, reportedly causing demand for
commercial and industrial loans to weaken slightly. Contacts in
most sectors reported downward revisions to their expectations
for growth in their industry for the remainder of the year,
suggesting that capital spending will remain muted in coming
months. On the consumer side, loan demand was largely unchanged.
While lending standards remained relatively restrictive for
business and consumer loans, the reports pointed to ongoing
improvements in overall credit quality and some loosening of
credit standards for selected borrowers.

Article source: http://www.bloomberg.com/news/2011-09-07/u-s-federal-reserve-beige-book-san-francisco-district-text-.html

Economic activity in the Twelfth District expanded moderately
during the reporting period of late February into the beginning
of April. Price increases for final goods and services remained
modest overall despite gains for selected commodities, and
upward wage pressures were limited as well. Sales of retail
items and demand for business and consumer services continued to
expand. Manufacturing activity in the District grew further.
Sales of agricultural products were robust, and demand edged up
for natural resource products. Demand for residential and
nonresidential real estate remained subdued. Contacts from
financial institutions reported small but widespread increases
in loan demand.

Wages and Prices

Price inflation for final goods and services was modest during
the reporting period. Although prices remained elevated for an
assortment of raw materials and commodities and rose further for
some, such as oil, the pass-through to final prices was quite
limited, with the noteworthy exceptions of food and gasoline.
For most other retail goods and services, prices continued to be
held down by subdued demand and vigorous competition.

Contacts in most sectors reported that upward wage pressures
remained weak. High unemployment and limited hiring kept
compensation gains at low levels in most regions and sectors,
although significant upward wage pressures were noted for
workers with advanced skills in technology fields. Looking ahead
to the next six months, the reports indicated that wage gains
are likely to pick up somewhat as more businesses eliminate wage
freezes established during the downturn.

Retail Trade and Services

Retail sales continued to improve overall. Traditional
department stores and discount retail chains alike reported
further increases in sales. Similarly, sales revenues rose for
grocers; contacts attributed the gains in part to higher food
prices in addition to increased sales volumes. Despite some
indications of rising appetites for discretionary spending,
consumers remained largely focused on necessities and lower-
priced options across a wide spectrum of products. Retailers of
major appliances and furniture reported that activity remained
subdued. Demand for new automobiles strengthened further,
propelled partly by manufacturers’ rebates and improved
availability of credit. Looking forward, some retail contacts
expressed concern that elevated gasoline prices will reduce
sales of other items.

Demand for business and consumer services rose further. Activity
expanded among providers of transportation services, with gains
in cargo traffic reported for major District seaports. Providers
of professional services, such as law and accounting, reported
modest demand growth. Suppliers of energy services noted further
increases in deliveries to households and businesses, and sales
continued to grow for providers of technology services. Contacts
from several parts of the District reported further growth in
business travel and tourism activity, although Japanese tourist
visits to Hawaii fell significantly following the March 11
earthquake and tsunami in Japan. Demand fell slightly for
providers of health-care services, as some patients reportedly
have been forgoing elective procedures.

Manufacturing

Manufacturing activity in the District posted further gains
during the reporting period of late February into the beginning
of April. Makers of commercial aircraft and parts reported
modest ongoing growth in new orders, attributed in part to
increased demand from airline companies for aircraft with
greater fuel efficiency. For manufacturers of semiconductors and
other technology products, demand continued to grow, with high
levels of capacity utilization and balanced inventories noted.
Sales rose further for metal fabricators, although contacts
reported minor production challenges arising from constrained
supplies of raw materials. Demand remained especially weak for
manufacturers of wood products, with the exception of firms in
the pulp and paper segment of the industry, which saw increases
in orders and output. Petroleum refiners reported slight gains
in gasoline sales volumes compared with twelve months earlier,
despite the demand constraints arising from higher prices and
poor weather, and capacity utilization rates were up accordingly.
Demand continued to grow for food manufacturers.

Agriculture and Resource-related Industries

Production activity and sales were robust for agricultural
products and grew further for metals and natural resources used
for energy production. Final sales and orders for most
agricultural products, including livestock and a wide variety of
crops, continued to expand. As a result, contacts noted rising
prices and constrained availability for selected inputs,
including fertilizer, seeds, and machinery such as tractors.
District mining activity expanded, as higher prices for assorted
metals have spurred investments in new capacity. Demand for
crude oil was slightly above its level from twelve months
earlier, while extraction activity for natural gas expanded,
increasing supply and causing the price to decline.

Real Estate and Construction

Activity in District residential and nonresidential real estate
markets remained at very low levels overall, albeit with slight
improvement noted in some market segments and areas. The sales
pace for new and existing homes was mixed across the District
but remained very weak overall, and contacts again noted that
the limited availability of nonconforming ?jumbo loans held back
sales of higher-priced homes in some areas. In response to
sluggish sales, new home construction stayed quite subdued.
However, demand for residential rental space grew further in
some areas, and reports noted modest increases in the
construction of apartment buildings. Demand remained weak
overall in commercial real estate markets, as vacancy rates for
office and industrial space remained elevated throughout the
District. However, further gains in leasing activity were noted
for some major markets in the District, particularly in
technology-intensive portions of the San Francisco Bay Area.

Financial Institutions

District banking contacts reported that loan demand was up
compared with the prior reporting period. Demand for commercial
and industrial loans rose perceptibly, as businesses in a
variety of sectors reportedly showed increased interest in
expansionary capital spending. Demand for consumer credit also
grew slightly. The reports indicated that competition among
lenders to extend credit to well-qualified small and medium-
sized businesses has intensified, placing downward pressure on
rates and fees. Overall, however, lending standards remained
somewhat restrictive for most types of consumer and business
loans. Venture capital financing activity and investor interest
continued to grow, particularly for companies focused on
Internet and wireless applications and digital media.

Article source: http://www.bloomberg.com/news/2011-04-13/u-s-federal-reserve-beige-book-san-francisco-district-text-.html