Federal Reserve Bank of San Francisco

Summary of Economic Activity

Economic activity in the Twelfth District continued to grow at a slight pace during the mid-February through March reporting period. Employment levels were little changed, and labor was more available. Wages and prices continued to rise at a slight pace on net. Retail sales were largely unchanged, while activity in the services sectors grew modestly. Demand for manufactured products remained flat on balance, and conditions in the agriculture and resource-related sectors were mixed. Both residential and commercial real estate activity weakened slightly. Activity in the financial services sector remained largely unchanged. Communities across the Twelfth District continued to report housing affordability issues and elevated demand for support services. Looking ahead, contacts expect slightly weaker economic conditions overall.

Labor Markets

Employment continued to rise at a slight pace this reporting period. Employers across the District generally reported holding their head counts steady or increasing it marginally, although some technology, financial industry, and real estate firms reduced the size of their workforce through layoffs and attrition. Some of the layoffs, particularly in the mortgage lending sector, were the result of bank mergers and acquisitions. Hiring was strong in agriculture and for some nonprofit community services but remained muted in the entertainment sector due to lower production volumes. The aviation and hospitality sectors increased their hiring pace because of higher staff turnover. Some firms reported that it was generally easier to fill open positions due to a larger pool of qualified candidates, while others still found it difficult to attract workers for on-site positions, particularly those located in high-cost areas. Many contacts highlighted deploying generative artificial intelligence (GenAI) tools to augment rather than replace workers. Nonetheless, a contact in the Pacific Northwest noted that several technology firms began using GenAI tools to replace some staff working in mid-level positions.

Wages continued to rise at a slight pace, as labor availability continued to improve. Annual pay increases moved closer to historical averages and in line with moderating inflation. Some contacts reported employees' willingness to take a pay cut in exchange for work flexibility and remote work. Wage pressures persisted in agriculture, as larger crop yields expanded the demand for workers.


Prices increased slightly on net for most products and services over the reporting period. Price levels were stable in retail, higher education, and health services and reportedly fell in the agriculture and lodging sectors. Input costs were generally stable, although some reports indicated higher costs for utilities, energy products, electrical supplies, lumber, and insurance. In some instances, the higher costs were passed through to prices, but some firms in food and beverages and consulting services observed resistance to price hikes from their increasingly price-sensitive consumers.

Community Conditions

Demand for community support and services remained high amid limited funding and strained resources. Households and community members sought assistance as they faced challenges with the cost of housing, utilities, food, and health services. Some contacts reported that government funding partially compensated for a decline in financial support from private-sector grants and individual donors. In some cases, public-sector funding was restricted to address specific issues, such as housing security, which limited their ability to address multiple issues facing community members. Small businesses across the District continued to face high borrowing costs, which limited access to funding and loans.

Retail Trade and Services

Consumer spending on retail goods remained largely unchanged. Demand for durable goods was strong, and sales at home improvement stores picked up. However, reports from across the District indicated that consumers have become more price sensitive in recent weeks, particularly for groceries and fresh produce, as they favored discounted products and focused on necessities. The prevalence of hybrid work arrangements continued to limit retail sales in downtown urban areas.

Activity in the consumer and business services sectors continued to grow modestly in recent weeks. Several contacts highlighted that demand for leisure and hospitality services improved in March following weak activity earlier this year. Business travel was up moderately as more conventions and conferences showed preference for in-person attendance. Restaurant activity was mixed during the reporting period as more consumers exhibited price-sensitive behavior. Demand for janitorial and security services remained robust, while demand for consulting services was muted.


Manufacturing activity remained flat in recent weeks, on balance. Contacts generally pointed at slightly lower demand for manufacturing products, although capital equipment and heavy machinery demand improved with a stronger orders pipeline. Several manufacturers highlighted ongoing investments in productivity-enhancing technologies, with a focus on GenAI tools. Inventory levels were generally lean and close to historical levels. Nevertheless, an automation equipment manufacturer noted that they have been holding a large order of custom-built industrial robots for a customer that put all automation projects on hold due to elevated costs and inflationary pressures experienced over the past few years.

Agriculture and Resource-Related Industries

Conditions in the agriculture and resource-related sectors were mixed, similar to the previous reporting period. Logging activity rose slightly on account of stronger domestic demand and more limited supply from international producers of lumber and plywood. Seafood stocks and yield crops, such as those of nuts and apples, remained high and exceeded domestic demand, leading producers to export excess supply. Retail and food service demand for agricultural products was flat to down. Transportation and packaging costs were stable to down, and growers noted that recent rainfall, while providing much-needed water for crops, caused flooding and damage. One contact in the Pacific Northwest noted that more growers have utilized temporary foreign worker programs to address domestic labor shortages in hiring for this year's harvest season.

Real Estate and Construction

Conditions in the residential real estate market softened a bit relative to the prior reporting period. Demand for single-family homes was subdued amid elevated mortgage rates and limited inventory. Demand for multifamily housing softened in recent weeks while supply grew further as more construction projects were completed. As a result, vacancies rose, rents fell, and landlords offered more concessions to renters. Single-family construction activity was slow as construction costs rose somewhat. However, in Hawaii, rebuilding efforts and government-supported projects bolstered construction activity. Materials and components were largely available, though delays persisted for electrical equipment.

Conditions in the commercial real estate market weakened slightly overall. Office leasing activity was weak, in part due to the elevated costs of renovating old spaces to meet prospective tenants' needs. Demand for industrial space eased somewhat but still remained above pre-pandemic levels. Transaction volumes of commercial property sales fell somewhat. Commercial construction was stable overall, though a contact in California observed some slowing due to high financing costs. A contact in the food services sector reported a shift away from construction of new food service establishments towards renovations of existing properties.

Financial Institutions

Activity in the financial services sector remained largely unchanged. Loan demand was weak across business and consumer categories, with the exception of credit cards. Deposit growth was muted during the reporting period, and competition for deposits was strong. Credit and asset quality were reportedly high, although delinquencies for credit cards and auto loans continued to tick up.

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Last Update: April 17, 2024