Federal Reserve Bank of San Francisco
Summary of Economic Activity
Economic activity in the Twelfth District remained largely stable during the April through mid-May reporting period. Employment levels were generally unchanged, with most employers holding head counts flat and hiring selectively. Wages rose slightly. Prices increased moderately, largely driven by higher fuel costs due to the ongoing conflict in the Middle East. Retail sales and demand for consumer and business services were unchanged on net. Manufacturing activity rose somewhat, while conditions in agriculture and resource-related sectors weakened somewhat. Activity in residential real estate continued to cool slightly, and commercial real estate activity was unchanged on net. Conditions in the financial services sector were stable overall. Rising needs and reduced funding continued to strain community organizations' ability to provide support and services. Contacts reported a weak economic outlook, though sentiment was slightly more optimistic than in the prior period.
Labor Markets
Employment levels remained generally stable over the reporting period. Most employers held head counts flat, hiring primarily in response to attrition. Some businesses in both the retail sector and the leisure and hospitality sector reduced employee hours. Contacts reported some employment declines from layoffs and attrition in the technology, construction, and finance sectors. Meanwhile, some businesses added positions to meet rising customer demand or to fulfill seasonal hiring needs for the upcoming FIFA World Cup events. Overall, job turnover remained low, and most open positions were easy to fill. One contact reported that lower turnover created more opportunities for training and internal advancement for employees. A leisure and hospitality contact noted the eased hiring conditions made it possible to hire seasonal workers rather than rely on more costly overtime to meet labor needs.
Wages continued to rise at a slight pace. Most contacts reported historically typical wage increases. However, wages rose more quickly to attract workers for some positions, including AI-related roles. In contrast, wages were flat for some businesses in the finance, food service, and retail sectors. One contact in Idaho noted increased wage competition in manufacturing due to expansion in the region by a large semiconductor manufacturer.
Prices
Prices rose at a moderate pace, as in the prior reporting period. Higher fuel prices attributed to the conflict in the Middle East drove up transportation and shipping costs for businesses across most sectors. Contacts continued to report tariff-related input cost increases, particularly for steel. Food service businesses faced higher prices for ingredients such as produce and animal products. Costs for technology services, event staffing services, and insurance also rose. Some contacts successfully pushed back against cost increases from suppliers. Others, such as in transportation, hospitality, retail, and manufacturing, passed increases on to customers in full or in part.
Community Conditions
Conditions for the community support and services sector weakened somewhat. Contacts reported an increase in demand for basic needs such as food assistance and housing support. A Pacific Northwest contact noted that planned construction of low-income housing declined amid uncertainty about future availability of housing vouchers. Government funding changes led more individuals to drop insurance coverage, which strained hospital resources. For nonprofit organizations, obtaining financial support from businesses became more difficult, and funding from public grants fell.
Retail Trade and Services
Retail sales were roughly flat over the reporting period. Demand for necessities remained stable across various categories, including nondiscretionary spending for groceries, pet products, and hardware for tradespeople and home repair work. One contact observed that higher tax refunds bolstered consumer demand. In contrast, demand weakened for discretionary items. One retail contact reported an increase in inventories as a result. Input costs continued to rise, driven by tariff-related pressures and higher energy prices and transportation costs.
Demand for consumer and business services was unchanged on net. Restaurant activity was mixed, similar to the previous reporting period. Demand at quick service restaurants rose somewhat because of value-driven promotions, while contacts in the Pacific Northwest reported that demand remained slow at full-service restaurants. Tourism-related demand was solid at the higher end and for specific events such as concerts and corporate gatherings. In contrast, demand declined at value-oriented venues and regional destinations as consumers cut back on driving long distances and taking weekend trips. A Nevada contact observed additional promotions and cuts in accommodation prices to attract travelers. Demand for most business services was stable, though it rose for technology and IT-related services in particular.
Manufacturing
Manufacturing activity strengthened somewhat over the reporting period. Demand was stable or increased for products such as commercial vehicles and capital equipment, as customers sought to make cost-saving investments and execute previously delayed purchase plans. Manufacturers continued to report cost increases for raw materials, energy, and shipping because of tariffs and higher global energy prices. Several contacts maintained or increased capital spending plans, while others paused plans due to ongoing financial constraints from general cost pressures and overall economic uncertainty.
Agriculture and Resource-Related Industries
Conditions in agriculture and resource-related sectors weakened somewhat. Costs for inputs, such as fertilizer and fuel, increased across the District. Despite fertilizer being a nondiscretionary input, demand was mixed, with some contacts reporting slight increases in demand, with others observing a reduction. Commodity crop prices remained flat or increased only slightly, which created financial challenges for farmers facing higher production costs. Log harvesting increased to make up for previous smaller harvests and to meet the higher demand for wood products such as lumber. Demand for tree crops was soft. Conditions in livestock markets were solid, similar to the last reporting period.
Real Estate and Construction
Residential real estate activity continued to cool slightly. Single-family home sales were stable but remained generally low, which increased inventory in some regions. Construction activity was slow, both for new homes and renovations. One contact observed a slight increase in the number of developers seeking to exit the market by selling existing projects. Rental rates were lower for multifamily units, and concessions were more prevalent. Although multifamily construction was generally stable, one contact in Utah reported a decline because of existing excess supply.
Activity in commercial real estate was unchanged on net. Leasing demand remained steady for retail space but soft for office space. Demand for industrial space was up marginally from businesses in manufacturing, defense, and consumer products, with tenants reportedly seeking spaces that better fit their business needs. Although slow otherwise, construction activity remained steady for infrastructure, defense, health care, and data centers. This created more competition for projects among contractors, leading some to absorb cost increases to secure contracts.
Financial Institutions
Conditions in the financial services sector were stable overall. Demand for business loans increased a bit overall. Construction lending was mixed across sectors and regions. Lender competition put downward pressure on rates in some markets. Mortgage refinancing activity fell slightly in some regions. Lending activity for other consumer loans was flat or down, as some consumers reportedly reduced credit card spending. Credit conditions tightened somewhat, with more loan delinquencies reported across the District. Deposit growth and rates offered were stable.
For more information about District economic conditions visit: https://www.frbsf.org/research-and-insights/publications/san-francisco-fed-twelfth-district-beige-book/.