SVET Reports
FED Beige Book (April 19, 2023) (Extracts for San Francisco)
Overall Economic Activity
Overall economic activity was little changed in recent weeks. Nine Districts reported either no change or only a slight change in activity this period while three indicated modest growth. Expectations for future growth were mostly unchanged as well; however, two Districts saw outlooks deteriorate. Consumer spending was generally seen as flat to down slightly amid continued reports of moderate price growth. Auto sales remained steady overall, with only a couple of Districts reporting improved sales and inventory levels. Travel and tourism picked up across much of the country this period. Manufacturing activity was widely reported as flat or down even as supply chains continued to improve. Transportation and freight volumes were also flat to down, according to several Districts. On balance, residential real estate sales and new construction activity softened modestly. Nonresidential construction was little changed while sales and leasing activity was generally flat to down. Lending volumes and loan demand generally declined across consumer and business loan types. Several Districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity. The majority of Districts reported steady to increasing demand and sales for nonfinancial services. Agriculture conditions were mostly unchanged in recent weeks while some softening was reported in energy markets.
Labor Markets
Employment growth moderated somewhat this period as several Districts reported a slower pace of growth than in recent Beige Book reports. A small number of firms reported mass layoffs, and those were centered at a subset of the largest companies. Some other firms opted to allow for natural attrition to occur, and to hire only for critically important roles. Contacts reported the labor market becoming less tight as several Districts noted increases to the labor supply. Additionally, firms benefited from better employee retention, which allowed them to hire for open roles while not constantly trying to back-fill positions. Wages have shown some moderation but remain elevated. Several Districts reported declining needs for off-cycle wage increases compared to last year.
Prices
Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing. Contacts noted modest-to-sharp declines in the prices of nonlabor inputs and significantly lower freight costs in recent weeks. Nevertheless, producer prices for finished goods rose modestly this period, albeit at a slightly slower pace. Selling price pressures eased broadly in manufacturing and services sectors. Consumer prices generally increased due to still-elevated demand as well as higher inventory and labor costs. Prices for homes and rents leveled out in most Districts but remained at near record highs. Contacts expected further relief from input cost pressures but anticipated changing their prices more frequently compared to previous years.
Highlights by Federal Reserve District
Boston
Business activity was roughly even. Tourism contacts enjoyed moderate growth, while retail sales were flat, and manufacturing slowed. Home sales fell further. Headcounts rose modestly and wage growth was moderate. Prices increased modestly amid further easing of cost pressures. Some contacts worried that smaller banks might restrict lending over liquidity concerns, putting a damper on economic activity.
New York
Regional economic activity was little changed, though goods production picked up noticeably. The labor market has remained solid, with ongoing slight job growth and wage gains. Inflationary pressures moderated somewhat but remained widespread. Conditions in the broad finance sector deteriorated sharply coinciding with recent stress in the banking sector.
Philadelphia
Business activity appeared to decline slightly during the current Beige Book period after increasing last period. Consumer demand ticked down, while employment held steady. Wage growth slowed to a modest pace. Price inflation subsided but continued to grow modestly. Banks reported tighter lending standards. Expectations were subdued as sentiment remained cautious.
Cleveland
Economic activity was generally flat in the Fourth District and developments in the banking sector appeared to have very little impact on either recent economic activity or credit availability. Labor demand eased, and the supply of workers increased, particularly for lower-wage positions. Wage and other cost pressures continued to ease.
Richmond
The regional economy contracted slightly in recent weeks. Manufacturing activity, retail spending, and loan demand softened. Travel and tourism picked up moderately while nonfinancial service providers indicated steady demand. Real estate firms reported reduced activity, while transportation freight volumes contracted moderately. Employment rose slightly with moderate increase in wages. Prices grew at a strong rate.
Atlanta
Economic activity grew modestly. Labor markets improved further, and wage pressures eased slightly. Some nonlabor costs moderated and others remained unstable. Retail sales softened. Auto sales were robust. Tourism activity remained strong. Housing demand improved further. Transportation was mixed. Loan growth was solid. Energy demand was healthy. Agriculture remained mixed.
Chicago
Economic activity was little changed. Employment increased moderately; consumer spending, business spending, and construction and real estate were flat; nonbusiness contacts saw little change in activity; and manufacturing demand decreased modestly. Prices and wages rose moderately, and financial conditions tightened moderately. Agricultural incomes were expected to be lower in 2023 than in 2022.
St. Louis
Economic conditions have remained unchanged since our previous report. Labor markets remained tight, but reports of easing increased. Firms struggled to pass on price increase to customers, and contacts across a range of industries reported supply chain improvements. Banking contacts reported slowing loan growth and a decline in deposits, but expressed confidence in their overall position.
Minneapolis
Economic activity in the region grew slightly in recent weeks. Employment gains were modest, and labor supply improved slightly. Prices were steady and wages rose slightly; levels for both remained high. Consumer spending was flat. Manufacturing declined a bit, but the outlook was more positive. Construction activity improved slightly, save for residential building. Minority-and women-owned firms reported steady activity.
Kansas City
Total economic activity across the Tenth District declined slightly in March and April. However, almost every business contact reported no pull back in planned capital expenditures, hiring plans or planned wage increases in response to recent financial volatility. Worker retention was reportedly much higher, even as wage growth slowed. Households pulled back on spending, particularly on bigger ticket items like cars or home construction projects.
Dallas
Modest growth continued, with steady gains in service sector activity and a pickup in home sales and manufacturing output. Job growth was modest, though hiring slowed sharply in services. The pace of price increases slowed. Outlooks were largely negative, and contacts voiced concern about weakening demand, a potential recession, and the spillover effects of the recent bank failures on the broader economy.
San Francisco
Economic activity expanded slightly. Employment levels were steady amid tight labor market conditions, while wage and price growth moderated further. Demand for retail goods softened, while demand for services was robust. Manufacturing activity was stable, while conditions in the agriculture sector slowed somewhat. Residential and commercial real estate activity fell, and lending activity declined substantially.
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Federal Reserve Bank of San Francisco
Summary of Economic Activity
Economic activity in the Twelfth District grew slightly during the mid-February through March reporting period. Employment levels were stable, while labor market conditions remained tight overall. Elevated wage and price levels persisted though grew at a slower pace relative to the last reporting period. Sales of retail goods softened slightly, while activity in the consumer and business services sectors maintained strength. Demand for manufactured products was steady, while conditions in the agriculture and resource-related sectors continued to slow slightly. Residential and commercial real estate markets weakened. Lending activity decreased substantially. Communities across the Twelfth District faced heightened challenges in their ability to provide food, shelter, and services due to credit constraints and reduced philanthropic giving. Looking ahead, contacts had a weaker overall economic outlook and expressed uncertainty in their business planning amid current market conditions.
Labor Markets
Labor market conditions remained tight overall despite reported softening in some sectors such as financial services and technology. Employment levels remained mainly stable, although hiring challenges continued in most sectors due to skill mismatch and limited labor supply. Contacts reported difficulty finding workers across all skill and experience levels. There were some signs however of easing, which several contacts attributed to an increase in labor supply from recently laid-off workers seeking employment. Several contacts noted improved worker retention in recent months, although job turnover remained generally elevated. While employers in leisure and hospitality continued to hire, which alleviated ongoing staff shortages, businesses in the financial services, technology, and entertainment sectors reduced head counts in response to waning demand.
Wage growth moderated during the reporting period, but wage levels remained high. Although wage pressures eased somewhat, workers continued to demand higher pay, and employers maintained offers of higher wages to attract and retain workers in the face of consumer price inflation and high housing costs. Contacts noted that with stiff competition for labor, firms attracted talent with pay increases and better benefits.
Prices
Overall price levels rose during the reporting period, though at a somewhat slower pace. Reports indicated higher final prices for goods and services in several sectors, including manufacturing, leisure and hospitality, consumer services, legal services, and agriculture. One contact in California noted that produce prices rose following supply disruptions due to recent flooding in the state. Firms largely continued to experience rising input costs, such as transportation, food, some construction materials, and insurance, though the pace of these increases moderated. Changes in energy prices were reportedly mixed, and a few contacts observed some softening in steel and aluminum prices.
Community Conditions
Conditions in the community support and services sector worsened in recent weeks. Nonprofit organizations reported that heightened uncertainty in the banking sector limited their access to credit and delayed ongoing affordable housing and community support projects. Nonprofit organizations noted that recent banking developments led many corporations to cut back on charitable donations, which further constrained their ability to meet demand for basic needs, including shelter, rental and food assistance, and mental health services. Employers across the District reported increased burnout and mental health strain among workers, particularly low-wage earners, due to higher living costs.
Retail Trade and Services
Retail goods sales softened slightly, as reduced savings and rising household debt hampered consumption expenditures. Food spending decreased somewhat as households continued to trade down to lower cost items. One contact from Washington noted that sales of organic produce weakened relative to conventional products. However, home improvement and do-it-yourself projects continued to support strong sales at home centers.
Conditions in the consumer and business services sectors remained strong. Demand for health-care services continued an upward trend. Demand for air travel was strong, while that for leisure and hospitality moderated somewhat in parts of the District, including Southern California, due to consumers' concerns about economic uncertainty. At the same time, the tourism industry in Hawaii and Nevada remained strong. Record rain and snowfall across the West Coast had a mixed effect. While the hospitality sector in Southern California saw a significant slowdown, Northern California saw higher demand for outdoor recreation.
Manufacturing
Activity in the manufacturing sector was steady. Some reported softness in orders from the construction industry was offset by strength in metal production, engineering, and food manufacturing. Demand for capital equipment and metal recycling products increased in recent months, while demand for wood products weakened as rising mortgage rates and bad weather slowed down residential construction. Production costs remained above historical averages, and labor tightness persisted. While supply disruptions continued to improve, contacts across the District reported delays in getting various electrical components.
Agriculture and Resource-Related Industries
Activity in agriculture and resource-related sectors decelerated slightly. Exports of agricultural goods weakened, and domestic demand for agricultural products was mixed. While growers in the Pacific Northwest reported weaker sales overall, producers in California noted strong, stable demand for fresh produce and other agricultural goods. Persistent rains and flood conditions in California affected plant pollination, delayed the planting of crops like tomatoes and cotton, and cast doubt on the viability of some orchard crops. One contact in Central California reported that the recent rains made large portions of grazing lands unsuitable for cattle. Seafood output in the Pacific Northwest remained stable. Sales of harvested timber cooled further, while investor demand for timberland remained elevated.
Real Estate and Construction
Conditions in the residential real estate sector worsened over the reporting period. Demand for single-family homes softened, and homes stayed on the market longer. Selling prices fell below initial asking prices, and the cancellation rate for purchase agreements reportedly increased. Multifamily housing demand was stable to weaker, depending on the region, and asking rents or the rate of rent increases fell. Uncertainty and high financing costs dampened new construction, but some reports indicated stronger activity in the lower-cost home category. Ongoing projects continued to be developed as planned across the District, but builders highlighted shortages of electrical equipment as a constraint to construction activity in the region.
Activity in the commercial real estate market weakened. Demand for office and health-care space continued to wane. Office vacancies rose as leases expired and occupants reduced their need for space due to hybrid and remote work arrangements. Demand for warehouse and industrial space remained generally strong, as did the demand for new data centers. One contact in Oregon highlighted local government's ongoing plans for continued development in downtown areas.
Financial Institutions
Lending activity fell significantly in recent weeks amid higher interest rates and elevated uncertainty in the banking sector. Lending standards tightened notably, and several depository institutions opted to reduce loan volumes, especially for new clients, despite reporting ample liquidity. Reports indicated that existing and planned projects across sectors were delayed or cancelled due to higher funding costs, heightened uncertainty, and more limited access to credit. Following recent volatility in deposit levels at regional and community banks, outflows have reportedly stabilized since late March.