The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed January 19, 2005

Federal Reserve Districts

Twelfth District--San Francisco

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

The Twelfth District economy continued to expand at a solid pace in late November and December. Contacts reported little or no pickup in the pace of overall price increases. The pace of cost increases for selected inputs eased, albeit from high levels. Several contacts noted that some of the higher input costs were passed on to consumers, though efficiency gains helped hold down overall production costs. Wages and salary pressures remained modest but up slightly overall. Strong export growth contributed to improving demand conditions in most sectors. Holiday retail sales, on balance, were up compared with last year, with retailers stepping up discounting in late December. Manufacturers, agricultural producers, and transportation and other service providers generally reported strong demand. Activity in District residential real estate markets remained robust, though it moderated in some areas. District banks reported overall solid loan demand and good credit quality.

Wages and Prices
The overall pace of price increases remained modest in recent weeks. District producers reported that, although the level of certain input costs remained high, increases in the cost of energy and building materials have eased from previous rapid rates. Several businesses indicated they were passing along at least some of the higher input costs to consumers. At the same time, several District businesses reportedly have experienced efficiency gains in their production processes, which served to hold down overall cost increases.

Contacts noted little change in labor market conditions. Reports indicated little or no difficulty filling positions, with the exception of certain high-skilled jobs in selected industries. Wages and salary pressures remained modest but up slightly overall; most District businesses reported that increases in benefits costs continued to push up total compensation bills.

Retail Trade and Services
Reports from District retailers indicated generally solid retail sales for the holiday season as a whole, with both dollar sales and unit sales up relative to last year. The strength of demand during the holiday season was broad-based across establishment types, with sales at discount stores, department stores, and establishments specializing in luxury products reportedly all performing well. Contacts noted that holiday season discounting was generally more restrained than last year, though many retailers increased discounting as the end of the season drew near. Perhaps as a result, sales performance was reported to have been considerably better toward the end of the holiday season than at the beginning. Overall, most contacts reported that holiday sales met expectations, leaving retail inventories in balance heading into 2005.

Sales of autos generally were solid during the survey period; foreign makes reportedly sold considerably better than domestic brands, despite the dollar's recent declines relative to other currencies. Final sale prices and profit margins remained restrained as a result of intense competition, particularly among domestic automakers.

District service providers reported a further strengthening in demand in recent weeks. For example, demand for health-care and transportation services was solid, and service providers operated at high utilization rates. District travel and tourism activity was healthy in most areas, with increases in both domestic and international traffic. In particular, the number of Japanese visitors to Hawaii have returned to pre-September 11 levels, boosting activity there. Hotel occupancy and average daily room rates continued to improve in many markets.

Most District manufacturers reported strong demand for their products in late November and December. Increased foreign demand for various products contributed to overall improvements in business conditions. Makers of machine tools reported strong demand for most of their products; the market for certain inputs such as steel plates is characterized by tight inventories, strong demand, and rising prices. Robust construction activity continued to drive demand for wall board, insulation, and other building products in recent weeks. Robust demand conditions also characterized the food processing industry. Transportation equipment makers reported that demand conditions improved; new orders edged up slightly in recent weeks. In IT manufacturing, semiconductor orders and sales generally were solid; however, capacity utilization of chip makers dropped slightly from its already high level.

Agriculture and Resource-related Industries
District providers of agricultural and resource-related products indicated a strengthening in demand during the most recent survey period. Agricultural exports rose in recent weeks. District orders and sales of tree nuts especially were high, attributable in part to favorable public announcements regarding nutritional value and in part to constrained supply in other nut-growing regions. Contacts reported that prices for most agricultural products increased moderately in recent weeks. Overall, respondents indicated strong underlying demand for natural resources. Contacts reported a slight decline in wholesale prices for natural gas, while retail prices generally remained stable. On the other hand, consumers in the Pacific Northwest faced higher electricity prices as the effect of drought conditions on hydroelectric generation more than offset the effect of mild weather on demand.

Real Estate and Construction
Demand for residential real estate generally remained robust in recent weeks. Sales of new and existing homes increased throughout the District and home-price appreciation remained solid, particularly in certain areas such as Hawaii. However, in some areas the pace of home sales growth and price increases slowed from previous rapid rates. The overall robust demand for new homes and home improvements has kept overall construction activity at high levels. District commercial real estate markets generally improved in recent weeks; contacts reported that office vacancy rates continued to fall, and rents increased moderately in most markets.

Financial Institutions
District banking contacts indicated overall solid loan demand and good credit quality in late November and December. A very competitive environment generally has kept profit margins low in the banking sector recently, although several contacts reported that profit margins have improved. Commercial and industrial lending edged up slightly in recent weeks. Demand for construction, commercial real estate, and residential loans slowed a bit in some areas but remained at high levels overall. Several contacts noted increases in merger and acquisition activities among District firms.

Return to topReturn to top

Previous Dallas Full report Next

Home | Monetary Policy | 2005 calendar
Accessibility | Contact Us
Last update: January 19, 2005