Summary of Economic Activity
Economic activity in the Twelfth District ticked down during the January to mid-February reporting period. Employment levels were generally stable, and labor availability continued to improve. Wages grew slightly in recent weeks, and prices rose slightly overall. Retail sales fell modestly, and demand for consumer and business services weakened a bit. Manufacturing activity improved somewhat, while conditions in the agriculture and resource-related sectors weakened slightly. Conditions in the residential real estate sector softened slightly on net. Lending activity varied across business lines but was largely unchanged on balance. Overall conditions of community organizations and small businesses weakened. Wildfire recovery efforts were reportedly boosted by increased donations and improved coordination among individuals and institutions. Contacts’ economic outlook worsened somewhat relative to the prior reporting period.
Labor Markets
Employment levels were generally stable over the reporting period. While most employers kept head counts steady, some firms in the information technology, entertainment, and aerospace industries reported layoffs. At the same time, hiring grew in subsectors that experienced solid demand and investment, such as business consulting and artificial intelligence solutions. Labor productivity improved overall, reportedly due to better job matching and enhanced use of technology. Employers across sectors continued to report lower staff turnover and improved availability and quality of job applicants. Positions were generally easier to fill except for certain service-related jobs such as housekeeping and building maintenance. Some contacts cited concerns about filling these positions going forward.
Wages grew slightly in recent weeks, in line with the prior reporting period and with historical averages. Ample labor supply reduced market wage pressures across industries. However, minimum wage laws and union contract negotiations continued to put upward pressure on wages for some positions in the service sector, especially in California.
Prices
Prices rose slightly overall after being generally flat in the previous reporting period. Manufacturing and construction firms reported modest price increases in recent weeks, while contacts in agriculture, business services, and retail trade noted largely stable final goods prices. Costs of insurance, electrical supplies, and building materials, such as wood products and various metals, ticked up. Contacts expected higher input costs going forward, including those for fertilizers, lumber, metals, and electrical components, as a result of recent trade policy developments. Due to perceptions of limited power to raise prices to mitigate rising costs, producers significantly expanded inventories of input goods at current prices and sought new vendors both domestically and abroad.
Community Conditions
Demand for support services remained elevated, while overall conditions of community organizations and small businesses weakened. Individuals across the District sought assistance with food, utilities, health care, and housing. Some workforce development programs expanded training for specific job roles that provide more stable long-term employment. Nonprofit organizations across the District reported being impacted by disruptions in federal government funding, with some organizations shifting budget allocations from public service provision to internal operations. Contacts in the Los Angeles area noted increased donations and improved coordination among individuals and institutions to support wildfire recovery efforts. Small businesses overall remained challenged by high operating costs, and some were acquired by larger companies.
Retail Trade and Services
Retail sales fell modestly in recent weeks, reportedly at a pace that exceeded typical post-holiday seasonal trends. Consumer spending on essential goods remained solid, while spending on big-ticket items and home improvement products generally weakened. Low snow volumes in parts of the District hurt demand for outdoor products and winter equipment. Some contacts highlighted that higher-income households across the District continued to spend at a brisk pace and that their demand for luxury items remained robust.
Demand for consumer and business services weakened a bit. Reports indicated that many businesses began the new year with a focus on cost efficiency and operational flexibility, largely driven by budget constraints and elevated economic uncertainty. This strategy reportedly reduced demand for janitorial, security, and catering services. Business and group travel volumes fell notably, with one hospitality contact in Southern California reporting a number of business trip cancellations from groups impacted by recent changes to federal government funding. Demand for consulting services and health-care services was unchanged at solid levels. Restaurant sales and demand for leisure travel strengthened somewhat in recent weeks.
Manufacturing
Manufacturing activity improved somewhat. Reports indicated stronger demand and order pipelines for capital equipment, office and home furniture, as well as footwear and apparel. Production of commercial aircraft and related third-party components picked up in recent weeks following reported production quality improvements and the conclusion of associated labor strikes. Several manufacturers expressed concerns regarding the impact of announced tariff rate increases on demand, production costs, and availability of inputs. A manufacturer in the Pacific Northwest increased inventory levels, as did its suppliers of critical components, as a hedge against future supply chain disruptions.
Agriculture and Resource-Related Industries
Conditions in the agriculture and resource-related sectors weakened slightly, as in the prior reporting period. Domestic produce sales were solid, but overall exports of agricultural products were down, particularly sales to Asian markets. Yields remained high for permanent crops such as apples, though some contacts reported that weather-related issues reduced produce supply levels. Producers and growers continued to invest in automation to address labor shortfalls. Some contacts observed weaker financial conditions in the industry, citing examples of late contract payments and requests for loan modifications. Producers across the District expressed uncertainty about the impact of recent changes to immigration and trade policies on labor availability, international demand, input costs, and final retail prices.
Real Estate and Construction
Conditions in the residential real estate sector softened slightly on net. Demand for single-family homes remained solid in some regions, such as Southern California, but reportedly cooled in others such as Arizona and Oregon. Inventories remained limited. Demand rose for multifamily rental units, particularly at the lower end of the market, and vacancies were easy to fill. Rents rose somewhat despite recently completed units increasing local supply in some areas. Contacts in the Los Angeles area attributed the increased demand for rental units and higher asking rents to the recent wildfires. Contacts observed fewer new single- and multifamily construction projects, citing higher construction costs and economic uncertainty.
Commercial real estate conditions were largely similar to those in the prior reporting period. Office space demand increased slightly but remained subdued overall. Rents for retail space rose at a pace in line with inflation. Commercial projects continued to be held back, with contacts citing higher construction and financing costs. However, work on public and infrastructure projects continued. Contacts reported that businesses paid attention to the possibility of further increases in construction materials costs and labor availability issues.
Financial Institutions
Lending activity varied across business lines but was largely unchanged on balance. Banking contacts highlighted a pause in most new borrowing and investment decisions among their business clients as they awaited clarity regarding possible fiscal and regulatory policy changes. Demand for consumer loans, including mortgages, remained subdued due to elevated interest rates. Reports indicated that competition for deposits among financial institutions began to normalize of late, allowing some institutions to offer lower deposit rates without notable changes to their deposit flows. Credit quality remained reportedly healthy overall.
Visit the Federal Reserve Board of Governors’ Beige Book page for the national summary, reports from all 12 Districts, and archives dating back to 1996.
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