Federal Reserve Bank of San Francisco

Summary of Economic Activity

Economic activity in the Twelfth District was stable overall during the reporting period from mid-November through December 2023. Labor availability improved, and employment levels rose slightly. Price pressures eased, and wage growth moderated notably. Retail sales grew modestly, while activity in services sectors was mixed. Conditions in the agriculture and resource-related sectors were solid, but demand for manufactured products weakened. Residential real estate activity softened further, while demand for commercial real estate varied by property type. Conditions in the financial sector were largely unchanged. Communities across the Twelfth District continued to report housing affordability issues and elevated demand for support services. Looking ahead, contacts expressed optimism regarding the economic outlook, and most respondents expected a pickup in economic activity in 2024.

Labor Markets

Labor availability improved and employment levels rose slightly during the reporting period. Contacts reported a notable uptick in job applications and a drop in employee turnover in recent weeks. Employers generally found it easier to attract and retain workers in retail, financial services, legal services, skilled trades, and professional services. Hiring challenges persisted, however, in health care, aviation, and logistics, and employers still found it difficult to attract experienced engineers, information technology professionals, and mid-level managers. A workforce development agency in Southern California highlighted a recent increase in the level of educational attainment and vocational training among its recruits.

Wage growth moderated notably in recent weeks. Annual pay increases returned to historical averages across sectors and geographies, and several contacts noted that recent pay adjustments were primarily limited to positions affected by changes to local and state minimum wage levels. Starting pay reportedly fell for a wide range of positions in the technology and financial services sectors due to softer overall activity in these sectors. Wage pressures persisted in leisure and hospitality.


Overall price pressures eased in recent weeks, although price levels remained generally elevated. Fewer goods and services saw price increases relative to previous reporting periods, and prices reportedly fell for energy products, construction materials such as wood and cement, manufacturing repair parts, fabricated metal, and plastic resin, as well as for hotel rooms. Still, costs of utilities and several insurance categories, particularly health and property insurance, continued to rise. Prices of grocery products were generally stable, and several contacts expected these prices to drop slightly in coming weeks, in anticipation of input costs moderating.

Community Conditions

Communities across the District continued to confront widespread shortages in affordable housing and associated increases in homelessness and housing insecurity. Demand for mental health services and food assistance programs remained elevated. Community service organizations continued to face challenges recruiting and retaining skilled workers. Funding availability was mixed, as some nonprofit organizations struggled to raise money while others benefited from an uptick in financial support from local governments. One contact observed that some nonprofit organizations opted to maintain hybrid or fully remote work arrangements to reduce or eliminate office rental costs.

Retail Trade and Services

Retail sales grew modestly over the reporting period. Retailers reported a solid holiday shopping season, which exceeded expectations in some cases. Home centers saw an uptick in demand for wood products, as customers favored home improvement projects over house purchases in a high interest rate environment. Retail businesses in Hawaii continued to report difficulties retaining labor in the aftermath of last summer's wildfire season, when many workers were displaced from their homes.

Activity in consumer and business services was mixed. Business travel edged up as the number of conferences and group events continued to recover. Demand for restaurant and bar services was steady, while activity in other leisure and hospitality sectors, such as lodging, moderated over the past few weeks. Demand for health-care services grew, and providers reported approaching capacity. Conditions in the legal services sector were mixed according to type of practice, as demand softened for mergers and acquisitions and increased for commercial litigation and loan contract renegotiations.


Manufacturing activity weakened over the reporting period. New orders were down for fabricated metals, manufactured wood products, and heavy equipment. Several manufacturers in the Pacific Northwest noted that lower construction activity reduced demand for their products, with one contact lowering production accordingly. Supply bottlenecks improved further, although some manufacturers reported recent delivery delays of critical production components, such as electrical equipment, auto parts, and textiles.

Agriculture and Resource-Related Industries

Conditions in the agriculture and resource-related sectors were solid. Contacts reported robust yields and inventories of various products, including seafood and some permanent crops such as tree fruits. The resulting ample supply continued to hold down prices, buoying domestic demand for agricultural food products overall. International demand was strong, and exports for some crops rose. One contact in the Pacific Northwest noted that, while overall demand for logs fell due to slower construction activity, demand for forested land with timber resources continued to grow. Availability of product transportation services and raw materials used in agricultural production improved further, and supply bottlenecks eased. Still, producers mentioned elevated production costs, such as for packaging and labor.

Real Estate and Construction

Activity in the residential real estate market continued to soften. Demand for single-family homes was sluggish due to limited inventory, high mortgage rates, and greater interest in rental homes. Construction of single-family homes was solid in some areas, such as Arizona, but reportedly slowed in others, such as Oregon. The supply of multifamily rental units ticked up as more construction projects were completed recently, raising vacancy rates and causing rents to grow more slowly or even fall in some regions. In contrast, recent multifamily starts fell due to elevated construction costs and borrowing constraints.

Conditions in the commercial real estate market were mixed. While demand for retail and industrial space was solid, office leasing activity remained weak. Transaction volumes of commercial property sales were down as sellers' asking prices exceeded what buyers were willing to pay. Construction activity reportedly slowed for private-sector commercial projects due to financing constraints, while construction of government public and infrastructure projects expanded. Challenges obtaining some materials, particularly electrical equipment, persisted.

Financial Institutions

Conditions in the financial services sector changed little over the reporting period. Demand for business loans, particularly commercial real estate loans, was subdued. Residential lending activity remained weak. Demand for auto loans and other consumer credit products remained steady. A few contacts noted an uptick in consumer loan delinquencies, but overall credit quality remained high. Demand for deposits remained elevated, and deposit flows were stable. One contact observed some clients moving funds away from liquid accounts into term deposits to lock in higher interest rates for extended periods.

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Last Update: January 17, 2024