Beige Book

From the Federal Reserve:


TWELFTH DISTRICT–SAN FRANCISCO

Economic activity in the Twelfth District continued to slow during the survey period of late February through early April, albeit with tentative signs of stabilization or a slower rate of decline evident in some sectors. Upward price pressures eased further, and upward wage pressures remained virtually nonexistent. Retailers reported generally sluggish sales and a continued shift towards less expensive items, and demand for services softened further.
Demand remained extremely weak for manufactured products on net, although slight firming was reported for information technology products. Demand held largely steady for agricultural producers but fell further for oil extractors. Activity in District housing markets stayed feeble, and demand for commercial real estate continued to decline. Contacts from financial institutions reported that overall loan demand weakened further and credit availability remained quite tight.

Wages and Prices

Upward pressures on prices eased further during the survey period, despite recent increases in oil prices. Other than oil, commodity prices in general remained largely stable or declined further. Vigorous discounting continued to hold down the final prices for a wide variety of retail items, and the prices of selected services fell during the survey period, most notably for transportation, lodging, and selected professional services such as accounting.

Upward wage pressures remained virtually nonexistent overall. Contacts in many sectors continued to report that they have frozen or cut wages and reduced benefit costs, for example by increasing employee copayments on medical expenses covered by employer health plans.
Unemployment rose further, and companies with open positions reported significant increases in the quantity and quality of job applicants, further reducing upward pressures on wages.

Retail Trade and Services

Retail sales remained very weak on net, with the exception of inexpensive necessities. Department stores and specialized retail stores saw continued dismal sales, with further declines noted in some cases. However, consumers’ focus on necessities, such as food and health products, prompted modest sales gains for some discount chains. Sales strengthened a bit further for grocers, and they and other retailers noted a pronounced demand shift from brand name to less expensive private-label products. Demand remained anemic for furniture, appliances, and electronic items. While demand for new automobiles continued to be feeble, sales strengthened
further for used vehicles, especially large pickups and SUVs. Unit sales of gasoline have firmed and were running slightly above their levels from 12 months earlier.

Demand for services fell further since the last survey period. Restaurants throughout the District continued to see their business drop, resulting in more layoffs and closures. Providers of health-care services saw further declines in activity. For providers of professional services such as accounting, business consulting, and legal services, demand continued to decline, and further
layoffs were noted. Demand for transportation services dropped substantially in recent months, with container traffic at ports reported to be down on the order of 20 percent compared with 12 months earlier. Travel activity in the District continued to fall: in Hawaii, visitor counts and spending remained down by double-digit amounts from12 months earlier, and contacts in California and Nevada also reported pronounced ongoing declines in tourist activity.

Manufacturing

District manufacturing activity remained weak overall during the survey period of late February through early April. Activity for producers of wood products continued to languish, with further curtailments in production and employment reported. Contacts in the metal fabrication industry continued to report very weak demand and extremely low levels of capacity utilization. New orders and sales of semiconductors and other information technology products firmed somewhat, causing inventories to fall, but the pace of sales remained well below the level from 12 months earlier. Production activity continued at high levels for aerospace manufacturers, although ongoing reductions in airline passenger and cargo capacity have started to cause order cancellations and delivery deferrals for new aircraft. Food manufacturers saw
further sales gains and continued to operate at high levels of capacity utilization.

Agriculture and Resource-related Industries Demand was largely unchanged for agricultural producers but weakened further for oil extractors. The pace of sales remained solid for assorted crops and livestock products. Supply conditions generally were favorable as costs fell further for fuel and other agricultural inputs, although drought conditions have prompted farmers to reduce planted acreage in some areas. Oil extractors reported further reductions in global demand and increases in inventories.

Real Estate and Construction

Housing market conditions in the District remained very weak on net despite sustained sales gains in some areas, and demand for commercial real estate fell further from already low levels. Substantial ongoing declines in home prices spurred in part by high rates of foreclosures have combined with low mortgage rates to increase affordability and cause a significant pickup in the pace of home sales in some areas. However, the overall level of new and existing home sales remained very low in most areas, as did construction activity for new homes.

Demand for commercial space continued to deteriorate, with some tenants requesting deferrals of lease payments amidst rising vacancy rates. Contacts reported that the lack of available credit has severely constrained construction activity and sales transactions for commercial real estate*.

*I wonder who the Fed contacts are

Financial Institutions

District banking contacts reported that lending activity and credit quality continued to weaken during the survey period. Demand for commercial and industrial loans fell further on net; some community banks reported a slight pickup, but the gains were held down by difficulties in securing secondary funding for large loan amounts. Bank lending standards remained very tight, with unusually stringent conditions imposed on many types of loans, and credit quality deteriorated further along with business and household balance sheets.