The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed October 12, 2006

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 expanded at a moderate pace on net during the month of September. Falling energy prices reduced upward pressures on the final prices of some goods and services, while the pace of wage increases generally remained contained but exerted upward price pressure in some industries. Reports on retail sales suggested modest growth on net, while demand for most services remained strong. Orders and output grew further for manufacturers and agricultural producers. Residential real estate markets continued to cool, while activity in commercial real estate markets generally expanded further but moderated in some areas. District banks reported solid loan demand and good credit quality but further declines in demand for residential mortgages.

Wages and Prices
District reports indicated that overall price inflation remained modest. Energy prices fell noticeably in most areas, reducing the retail price of gasoline and relieving upward price pressures for assorted energy-intensive products. Contacts also noted a decline in the prices of selected building materials used primarily for residential construction, although the prices of some other building materials rose. More generally, respondents noted limited price pressures.

Overall wage growth remained moderate, in the range of 2-4 percent on an annual basis. Wage growth was more rapid for selected groups of workers in short supply, notably in the health-care, finance, and construction sectors, and in fast-growth areas with very tight overall labor markets, such as Idaho and Utah; however, a few respondents in those areas indicated reduced wage pressures of late. Rising labor costs were offset by enhanced production efficiency in most cases, but a few reports indicated significant pass-through to final prices.

Retail Trade and Services
District retail sales grew modestly from the previous survey period. Sales rose somewhat for small retail items such as apparel, but they fell for items used for home improvement. Auto demand changed little from the previous survey period; sales of fuel-efficient import vehicles continued to rise at a solid clip, while sales fell further for large, fuel-inefficient domestic models.

Service providers generally reported strong demand. Activity continued to expand at a robust pace for providers of health services, and sales grew further for providers of media and high-tech services. Tourist activity remained at high levels in most major markets, but some moderation was noted. In Hawaii, tourist visits and spending were down compared with a year earlier. In parts of California, hotel occupancy rates reportedly have stabilized following a prolonged climb, but room rates continued to rise.

Demand for District manufactured products grew further during the September survey period. Sales of semiconductors expanded at a solid pace that was in line with industry forecasts, although inventories reportedly rose slightly; capacity utilization generally remained in the range of 90 percent. Rapid production activity continued for producers of commercial aircraft and for their parts suppliers, while makers of machine tools reported substantial growth in new orders of late. Food processors reported further sales gains, and demand for apparel was "steady." By contrast, demand for selected building materials used primarily for residential construction fell further. Except for tight supplies of skilled workers in some areas, manufacturing contacts generally reported little or no constraints on their ability to expand output further.

Agriculture and Resource-related Industries
Sales of agricultural and resource-related products grew further and production conditions were stable in general. Sales were strong for livestock and most crops, and weather conditions generally were favorable, keeping production on track. However, some spinach producers have put planting on hold due to the recent bacterial outbreak associated with that crop. Respondents noted further easing of labor shortages in the agricultural sector and a reduction in upward price pressures due to falling fuel prices. Extraction of oil and natural gas continued at a rapid pace, with very high capacity utilization noted. However, inventories of natural gas were reported at near-record levels, maintaining downward pressure on the price of this commodity.

Real Estate and Construction
Demand for residential real estate fell further in most areas, while activity in commercial real estate markets continued to expand but at a slower pace than previously in some areas. The pace of home sales, construction, and price appreciation slowed further in most parts of the District, and contacts in some areas noted that developers have been offering price concessions and other incentives to entice buyers. Demand for commercial and industrial space rose further in most areas, reducing vacancy rates and leading to further increases in rental rates; however, contacts in a few areas reported a recent reduction in the pace of demand growth. In areas where home demand has been resilient or commercial and public projects have grown rapidly, builders continued to face project backlogs and high costs. In other areas, however, overall building activity has fallen, and contacts noted that reduced home demand has led to layoffs for mortgage brokers and real estate agents.

Financial Institutions
District banking contacts reported solid loan demand and good credit quality. Overall loan demand was reported to be "healthy," as further growth in commercial and industrial loans generally offset declines in demand for home loans. However, a few contacts noted slight weakening in overall loan demand relative to the previous survey period. Credit quality was high in general; for example, loan delinquencies were reported to be "practically nonexistent" in Utah and Idaho.

Return to topReturn to top

Previous Dallas Full report Next

Home | Monetary Policy | 2006 calendar
Accessibility | Contact Us
Last update: October 12, 2006