Federal Reserve Bank of San Francisco

Summary of Economic Activity

Economic activity in the Twelfth District was unchanged on balance during the April through mid-May reporting period. Employment levels were generally flat, and labor was more available. Wages grew slightly, and contacts reported lower goods prices and higher services prices. Retail sales grew slightly. Activity in services sectors weakened a bit, as did activity in residential real estate markets. In contrast, commercial real estate activity was unchanged. Demand for manufactured products picked up slightly. Conditions in the agriculture and resource-related sectors remained mixed. Activity in the financial services sector remained largely unchanged. Communities across the Twelfth District sought services for mental health support as well as housing and food assistance. Looking ahead, contacts expect a modest decline in economic conditions overall.

Labor Markets

Employment levels were generally flat over the reporting period. Reports of low attrition rates continued, and employers preferred to fill only critical positions. One contact described the labor market to be in a "lock-in" situation—employers are generally not laying off workers, and workers are not quitting as often as in recent years. Employers across sectors reported receiving more applications for entry-level positions than before. However, they are still finding it difficult to attract experienced engineers as well as electricians and other skilled trades workers including machinists and welders. Several contacts in the hospitality industry reported hiring more foreign-born workers—on permanent and temporary bases—in recent months to address persistent labor shortages.

Reports indicated that wages grew slightly in recent weeks, in line with the prior reporting period. Wage pressures generally eased in many business services, such as consulting and financial services, but several contacts mentioned having to pay a premium to hire experienced workers. In addition, businesses needing workers knowledgeable in generative artificial intelligence technologies reported strong wage pressures and competition.


Prices continued to increase at a slight pace on net. Contacts emphasized the discrepancy between recent movements in goods and services prices. Good prices—such as for food products, lumber, steel, and building materials—fell or were unchanged, while services prices, particularly for insurance and utilities, rose notably. Several contacts in retail trades and leisure and hospitality reported limited ability to pass higher costs onto consumers, particularly in areas which experienced recent increases in state and local minimum wages.

Community Conditions

Conditions in the community support and services sector worsened somewhat in recent weeks. Demand for mental health services, housing assistance, food assistance, and other related services remained high. Contacts across the District reported more difficulties obtaining funding for nonprofit organizations in recent weeks as government agencies, firms, and individuals scaled back support. Faced with these challenges, nonprofit organizations turned to other funding sources such as offering new fee-based services and drawing down endowments. Reports highlighted that small businesses continued to face challenges covering labor and other business expenses, and some opted to reduce operating hours to reduce costs.

Retail Trade and Services

Retail sales grew slightly over the reporting period. Consumers continued to buy lower cost items, and they reduced spending on nonessential goods, as sales of big-ticket items and luxury goods reportedly weakened. Retailers reported stable consumer demand for home goods and food and beverages, while sales of pet care products slowed somewhat.

Activity in the consumer and business services sectors weakened a bit in recent weeks, after growing modestly in the previous reporting period. Demand for business consulting and accounting edged down, while demand for legal services was unchanged. Demand for health-care services remained strong, and supply was at or near capacity. Restaurants across the District reported slower consumer spending, with many customers replacing dining out with eating meals at home. Activity levels in the travel, entertainment, and hospitality industries were unchanged in most regions across the District, and business and leisure travel overall remained below pre-pandemic levels. Seattle tourism recently increased, which reportedly boosted sales for consumer-facing businesses.


Manufacturing activity picked up slightly. Demand for capital equipment and fabricated metal strengthened. Seasonal maintenance projects and repairs led to a higher volume of new orders, and some previously delayed projects regained momentum and supported higher manufacturing activity. At the same time, a wood products manufacturer in the Pacific Northwest reported a slowdown in production due to a lower timber supply. More broadly, delivery times and availability of materials continued to improve but have not returned to pre-pandemic levels for some products.

Agriculture and Resource-Related Industries

Conditions in the agriculture and resource-related sectors remained mixed. Current yields and past harvest inventories of food products, such as tree fruit, tree nuts, and seafood, remained high over the reporting period. Domestic demand from food services and retail sectors was stable but not sufficient to absorb domestic supply. As a result, prices fell for some agricultural products, such as apples, and exports increased. Harvesting restrictions, softening domestic sales, and slower international demand for lumber weakened logging activity, which resulted in some sawmill closures.

Real Estate and Construction

Activity in residential real estate slowed further. Single-family home sales fell amid continued low inventory. Several contacts noted that despite high mortgage rates, demand exceeded the supply of available homes for sale. Construction of single-family homes already in progress, though at a low level, was stable, and single-family housing starts picked up. Multifamily housing starts fell, but construction completions continued to expand the supply of rental units, slightly lowering rents, raising vacancy rates, and increasing leasing incentives. A contact in California noted that a recent change in state regulations has raised construction costs.

Commercial real estate activity was unchanged on balance. Demand for retail space strengthened, which led to lower vacancies and higher rents in this subsector. Industrial leasing declined slightly, but activity remained robust. Construction of new commercial space was stable. Builders continued to work through a backlog of existing projects, although a contact in Arizona indicated that difficulties obtaining financing curtailed some new construction activity.

Financial Institutions

Lending activity was little changed on balance. Most banks continued to report soft demand for loans. Some contacts mentioned that clients deferred borrowing for new projects, while other contacts noticed subtle increases in loan originations, particularly to finance construction projects. Competition for deposits remained elevated as some clients reportedly moved their assets to nonbank alternatives offering higher interest rates. Lending requirements tightened further, and credit quality was strong.

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Last Update: May 29, 2024