The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed January 14, 2009

Federal Reserve Districts

Twelfth District--San Francisco

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Economic activity in the Twelfth District weakened on net during the survey period of December through the beginning of January. Upward price pressures continued to ease overall, largely as a result of declines in the prices of energy and some commodities, and upward wage pressures have largely disappeared. Holiday season retail sales were very sluggish, and demand for services continued to soften. Manufacturing activity dropped significantly on net. Demand for agricultural products generally remained stable, but conditions weakened further for oil extractors. Conditions remained feeble in District housing markets, and demand for commercial real estate continued to fall. Contacts from financial institutions reported very weak loan demand and tight credit availability.

Wages and Prices
Upward pressures on prices eased further during the survey period. Prices for energy and selected commodities, including assorted foodstuffs and selected construction materials, continued to fall. Final prices for a wide variety of retail items were held down by extensive discounting. With few exceptions, contacts reported that they expect upward price pressures in their respective industries to remain very limited or to moderate further during early 2009.

Contacts reported little or no upward pressure on wages. With unemployment rising in most areas, companies have seen an increase in the quantity and quality of applicants for open positions, which limits upward wage pressures. Some contacts also reported that they are implementing or considering wage freezes, which employees appear increasingly willing to accept. Wage gains continued to slow for worker groups that previously had seen rapid growth, notably those skilled in the use of advanced technologies.

Retail Trade and Services
Contacts reported an exceptionally weak holiday sales season. The slowdown in retail sales continued to be more pronounced for traditional department stores, while discount chains fared better as consumers curbed their discretionary spending and focused on necessities. Several contacts described the holiday spending season as the weakest in memory, although some also noted that early expectations for weak sales helped to keep inventories largely under control. Demand weakened further for electronic items, which had been a bright spot earlier in 2008, and also for furniture and household appliances. Demand for new automobiles continued to languish, although falling gas prices spurred slightly improved sales of larger used vehicles, such as SUVs. Unit sales of gasoline remained sluggish, despite the price declines.

Demand for services fell further compared with the previous survey period. Providers of health-care services reported continued declines in activity. For providers of professional services such as advertising, legal services, accounting, and business consulting, demand continued to fall, and contacts noted concerns regarding the ability of clients to pay. Travel activity declined further: contacts from Southern California reported that much weaker demand for hotel rooms has followed recent supply expansions that had heightened the competition for bookings; in Hawaii, tourist visits and spending were down by double-digit amounts relative to 12 months earlier, and hotels and related businesses have been laying off staff.

District manufacturing activity weakened significantly during the survey period of December through the beginning of January. Sales of semiconductors and other information technology products slowed substantially in recent months, causing capacity utilization to fall and inventories to rise, accompanied with layoffs by some companies. Activity for producers of wood products remained extremely depressed, with further curtailments in production and employment expected due to the sluggish pace of home construction. Capacity utilization rates at petroleum refineries remained well below their longer-term average. Metal fabricators struggled with very weak demand, which reduced capacity utilization to unusually low levels and forced some companies to impose restricted work schedules. Activity continued at high levels for aerospace manufacturers, although contacts cited uncertainty regarding demand for commercial aircraft and national defense products in coming months. Food manufacturers saw solid demand in general, albeit with some reductions due to scattered business failures among their retail customers.

Agriculture and Resource-related Industries
Demand generally remained stable for agricultural producers but weakened further for oil extractors. Sales continued at a solid pace for most types of agricultural products, while input costs fell, particularly for fuel and fertilizer. Among oil extractors, weaker demand coupled with ample worldwide supply caused inventories to rise and prices to fall, further reducing the economic viability of higher-cost capacity expansion projects.

Real Estate and Construction
Housing market activity in the District remained feeble during the survey period, and demand for commercial real estate fell further. Despite some pickup in recent months, the pace of home sales continued to be quite slow in most parts of the District; home prices continued to fall, with the pace of decline quickening in some areas. Conditions in the commercial office market remained exceptionally weak, with demand for new and existing space reportedly held down by credit market constraints and uncertainty among potential tenants regarding future business conditions. Construction activity was very limited, except for specialty projects such as hospitals and government facilities.

Financial Institutions
District banking contacts reported that loan demand remained very soft. Commercial and industrial loan volumes were at very low levels, as few businesses sought to expand production capacity or inventories. Credit quality deteriorated further, and the availability of credit remains quite constrained, with contacts reporting that some banks have withdrawn from entire lending lines. The sole bright spot was an increase in mortgage applications, especially for refinancing conforming home loans, which was spurred by the recent drops in interest rates on such loans.

Return to topReturn to top

Previous Dallas Full report Next

Home | Monetary Policy | 2009 calendar
Accessibility | Contact Us
Last update: January 14, 2009