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Economic activity in the Twelfth District continued to grow at a moderate pace during the reporting period of late November through the end of December. Upward price pressures remained very modest overall, and upward wage pressures were quite limited. Holiday retail sales reportedly were up over last year's season, and demand edged up for business and consumer services. District manufacturing activity grew further on net. Production activity and sales remained robust for agricultural producers and rose a bit further for providers of energy resources. Activity in District housing markets stayed at very low levels, and demand for nonresidential real estate generally was weak. Reports from financial institutions indicated a slight increase in business loan demand.
Wages and Prices
Price inflation remained quite limited for most final goods and services during the reporting period. Contacts noted recent price increases for selected commodities such as oil and for assorted food items at the retail level, in particular for meat. However, intense supplier competition for existing customers kept a lid on final sales prices for the majority of retail goods and services.
Contacts in most sectors reported that upward wage pressure were modest, although they continued to note rising costs for employee health benefits. Elevated unemployment rates and limited hiring kept compensation gains modest across most regions and sectors, with the exception of significant wage increases for workers with specialized skills in selected manufacturing and technology sectors. Looking ahead, most businesses expect little change in the pace of hiring and wage gains next year.
Retail Trade and Services
Retail sales were up compared with last year's holiday season, with gains reported by traditional department stores as well as discount chains. Inventories generally were at or near desired levels given the pace of sales, although contacts reported an excess of winter apparel resulting from unusually mild weather. Demand remained largely unchanged compared with prior reporting periods for retailers of major appliances, furniture, and electronics. Sales improved somewhat for grocers. Sales of new automobiles rose further overall during the reporting period, although slightly softer demand was noted for the last few weeks. Demand for used vehicles remained robust, and dealers reported marked improvement in the quality of trade-ins compared with earlier in the year.
Demand for business and consumer services was mixed but appeared to expand slightly on net. Demand for transportation services remained largely flat, as did demand for professional services such as legal services and accounting. Sales were largely stable on a seasonal basis for restaurants and other food-service providers. For providers of health-care services, demand softened a bit further, as higher emergency room visits were more than offset by declines in inpatient admissions and surgeries. By contrast, sales continued to expand for providers of technology services to businesses and consumers, although the pace of growth continued to slow. District travel activity picked up further, with additional growth in demand reported for the tourism and business segments of the market alike.
District manufacturing activity expanded further on balance during the reporting period of late November through the end of December. Makers of commercial aircraft and parts reported further expansion in production activity, with ongoing growth in new orders attributed in part to rising demand for fuel-efficient aircraft. Activity remained largely stable for metal fabricators and is expected to remain so for the foreseeable future. For manufacturers of semiconductors and other technology products, demand growth continued to slow, and capacity utilization dipped a bit from existing high levels as companies sought to hold down inventory growth. Capacity utilization rates for petroleum refiners remained largely stable or rose somewhat as robust global demand for distillate products, such as diesel and jet fuel, offset weak domestic demand for gasoline. Activity remained exceptionally sluggish for manufacturers of wood products.
Agriculture and Resource-related Industries
Demand was robust for agricultural producers and grew a bit for natural resources used for energy production. Final sales and orders for most agricultural products, including livestock and a variety of crops, continued to expand. Elevated price levels for a range of metals supported further expansion of mining activity in parts of the District. Overall demand for crude oil rose slightly, largely reflecting robust foreign demand, while mild winter weather has kept demand for natural gas subdued and caused extraction activity to wane a bit.
Real Estate and Construction
Home demand in the District remained at very low levels, and demand for commercial real estate stayed weak. The sales pace for new and existing homes was somewhat mixed across the District but sluggish overall. In response to slow sales and continued high numbers of financially distressed properties, home construction activity remained moribund and prices were mostly flat. Demand for commercial real estate remained weak overall, keeping vacancy rates for office and industrial space elevated in most parts of the District. However, in selected geographic areas, such as the San Francisco Bay Area and Seattle, expansion in the information technology sector continued to spur demand growth for office and industrial space.
Reports from District banking contacts indicated that loan demand improved a touch relative to the prior reporting period. The volume of new commercial and industrial loans inched up, although contacts noted that businesses remain very cautious in their approach to capital spending. Contacts again noted stiff competition among lenders to extend credit to well-qualified small and medium-sized businesses, causing sustained downward pressure on loan rates and fees. Contacts from the venture capital sector noted a slight pickup in IPO and investment activity, on the heels of a slowdown in the prior reporting period. On the consumer side, loan demand remained largely unchanged. In general, lending standards stayed relatively restrictive for many types of business and consumer loans, despite further modest improvements in overall credit quality.