Beige Book Report: San Francisco
September 6, 2023
Summary of Economic Activity
Economic activity in the Twelfth District strengthened slightly during the July through mid-August reporting period. Hiring activity was generally stable and labor availability improved. Price increases persisted, albeit at a slower pace, and wage pressures softened further. Retail sales increased slightly, on balance, but activity in the service sectors was somewhat mixed. Demand for manufacturing goods was stable, and conditions in agriculture and resource-related sectors remained largely unchanged. Residential real estate activity was flat while that of commercial real estate was mixed. Lending activity moderated in recent weeks. Communities across the Twelfth District observed increased demand for shelters and food bank services, particularly in areas impacted by adverse effects of wildfires and other severe weather events in Hawaii and California. Contacts generally expressed a slightly more positive outlook for the economy relative to the previous reporting period.
Labor Markets
Hiring activity was generally stable during the reporting period, and labor availability improved further. Many employers mentioned holding their head counts flat in recent weeks, and some firms reported being overstaffed. Contacts highlighted expanded candidate pools and greater ease in finding applicants with appropriate skill sets. Hiring activity in the technology sector remained subdued aside from positions focusing on artificial intelligence. Contacts in the agriculture and health-care sectors noted their continued investment in automation, reducing their demand for workers on net. Nonetheless, hiring challenges persisted for specific positions within many sectors, including aviation, retail trade, and food services. Employee turnover generally decelerated but remained high in a few industries, including hospitality and nonprofit community services. One employer in manufacturing mentioned additional interest in transitioning interns into full-time positions. In entertainment, hiring has reportedly halted while contract negotiations continued over disputes between the studios and the industry's labor unions. Looking ahead, many employers mentioned plans to hire only on a replacement basis or implement possible cutbacks over the remainder of the year.
Wage pressures softened further across most sectors. Reports mentioned continued wage growth in recent weeks but at a slower pace than previously observed. However, some firms in agriculture, hospitality, community services, and gaming continued to face upward wage pressures ranging from moderate to strong in some regions. Several employers mentioned focusing their wage increases on entry-level jobs, partially due to new local minimum wage regulation.
Prices
Prices increased at a slower pace for most products and services. Reports noted generally stable prices for many supplies, including most building materials, paper products, chemicals, and foods and beverages. However, strong price pressures persisted for other product and service categories, including utilities, insurance, used vehicles, packaging, and some construction materials such as cement and gypsum. One contact attributed continued price pressures to firms maintaining above-average levels of inventory due to global economic uncertainty.
Community Conditions
Housing affordability, homelessness, and food insecurity continued to challenge communities across the District. Temporary housing shelters and food banks saw increased demand in recent weeks, especially from older adults. In particular, demand for services was highest in areas impacted by wildfires and other severe weather events in Hawaii and California. Nonprofit organizations reported challenges meeting the demand for behavioral health and substance misuse services. Several contacts highlighted ongoing consolidation among nonprofit organizations due to chronic labor and funding issues.
Retail Trade and Services
Retail sales rose slightly in recent weeks, on balance. Retailers reported ongoing strength in consumer spending in most areas even though shoppers continued to trade down to lower cost items and reduce their spending on nonessential goods. Demand for food and beverages remained largely unchanged, while sales of pet care products slowed somewhat. A few retailers noted lingering challenges from the pandemic, as well as tighter access to affordable credit. Reports highlighted continued improvements in supply chains but noted that inventory growth ticked down.
Activity in the consumer and business services sectors was somewhat mixed. Demand for business consulting edged down, while demand for legal and accounting services was robust. Hospitality and tourism activity remained solid despite increased competition from foreign destinations for leisure travelers. Demand for health-care services and maintenance work reportedly increased.
Manufacturing
Manufacturing activity was stable over the reporting period, on net. While many manufacturers, including automotive, commented on overall weakening demand, orders for some manufactured products grew further. Food manufacturing continued to operate at or near capacity, and demand for capital equipment and fabricated metal products remained strong. However, some customers temporarily delayed projects due to overall economic uncertainty and concerns over an economic downturn. Supply chain disruptions eased further, and some manufacturers reported normalizing inventory levels. Delivery times for supply materials continued to improve, but availability of semiconductors remained constrained.
Agriculture and Resource-Related Industries
Conditions in the agriculture and resource-related sectors remained largely unchanged during the reporting period. Domestic retail and food services demand for agricultural products was stable, with strength noted particularly for fruits and vegetables. A contact from Arizona reported challenges with limited availability of produce for retail outlets. Exports of some products, such as grain and hay, reportedly fell, resulting in increased domestic supply levels and lower domestic prices. Major fish stocks were stable. Though yields for some crops remained low due to the wet winter, contacts reported high volumes of crops carried over from the prior harvest and strong projections for this year's perennial crop yields in California and Washington. Production input costs remained elevated with upward movement for some costs, such as packaging and energy.
Real Estate and Construction
Activity in residential real estate was flat over the reporting period. Demand for single-family homes remained strong. Contacts across the District reported that homes continued to receive multiple bids from prospective buyers. Inventories of existing single-family homes remained low as owners were reluctant to relinquish lower-rate mortgages. Multifamily rents reportedly increased but at a moderating pace. Some contacts observed that new residential construction activity rebounded somewhat in past weeks, while others noted declines in permitting and difficulty finding lots. Raw materials were reportedly more readily available.
Commercial real estate activity was mixed in recent weeks. Weakness in the office leasing sector continued, and vacancy rates remained elevated. However, a contact in Utah reported stable demand for retail and industrial space, higher retail rents, and overall lower vacancy rates. Commercial construction activity weakened slightly. Work on existing projects continued due to lengthy construction timelines, but plans for new projects were delayed or abandoned. Some inputs, such as electrical components and appliances, became harder to find.
Financial Institutions
Lending activity moderated in recent weeks. Demand for business loans, particularly commercial real estate loans, weakened some as higher financing costs led firms to further delay or cancel projects. Residential lending remained subdued due to high mortgage rates and limited inventories. Consumer lending, particularly for credit cards, was reportedly solid. Some contacts reported competition for deposits strengthened to an all-time high, as more customers actively sought higher deposit rates and looked at money market funds as an alternative. Lending standards tightened further, and credit quality remained strong.