Summary of Economic Activity
Economic activity in the Twelfth District slowed slightly during the mid-February through March reporting period. The step-down in economic activity was broad based, reported across many industries and different geographies. Employment levels fell somewhat, and employers across industries and geographies reported recent and planned layoffs. Wages grew slightly. Overall prices rose modestly, and price pressures intensified for a wide range of imported goods and materials. Demand for retail and services weakened as both households and firms were more cautious with their spending amidst elevated economic uncertainty. Manufacturing activity decreased slightly, while conditions in the agriculture and resource-related sectors were largely unchanged. Activity in residential and commercial real estate markets softened slightly on net, and lending activity was stable. Demand for community support services remained high. Overall sentiment and the economic outlook worsened materially relative to the prior reporting period, and several contacts expected a notable downturn in labor market conditions over the coming months.
Labor Markets
Employment levels fell slightly in recent weeks, and the labor market outlook generally deteriorated. Contacts across industries and geographies reported recent and planned layoffs, with some citing lower demand from both private- and public-sector customers and others seeking cost efficiencies. Employers who sought to hire found it generally easier to attract qualified applicants, though engineers and workers in the skilled trades were notable exceptions. A large hospitality services provider plans to hire significantly fewer seasonal workers this year due to lower expected demand as well as to pause hiring work visa holders amidst policy uncertainty.
Wages continued to grow at a slight pace, in line with prior reporting periods. Contacts described the current labor market to be generally favorable to employers, with fewer opportunities for prospective employees to negotiate starting pay. Nevertheless, recent increases in state and local minimum wage mandates continued to put upward pressure on wages for some positions in the service sector, especially in California.
Prices
Overall price levels rose modestly in recent weeks, at a slightly faster pace than in the previous report. Contacts reported higher price pressures for a wide range of imported goods and raw materials, including aluminum, steel, lumber, electrical components, apparel, footwear, as well as various wholesale and retail food items. Cost of some services remained elevated, particularly for insurance, health care, and utilities. Some leisure and hospitality businesses facing softening demand lowered their prices to retain and attract customers. Several contacts received price increase notices from suppliers, citing recently implemented and anticipated increases in tariff rates. Contacts generally expected inflationary pressures to intensify over the coming months. Most contacts reported that they plan to pass increased input costs on to customers, but some expected to absorb cost increases to preserve market share.
Community Conditions
Community support services providers reported deteriorating conditions. Demand for housing and food assistance services remained high. Organizations providing workforce and economic development services focused on sectors experiencing strong demand including health care, skilled trades, and technical manufacturing. Funding fell from public and private sector sources because of recent changes to federal policy as well as reduced discretionary and philanthropic spending by private businesses. Funding shortfalls led some nonprofits to cut services and program offerings and to lay off workers. Contacts in the Los Angeles region noted that demand for community services and support related to wildfire recovery efforts remained high.
Retail Trade and Services
Retail sales fell modestly in recent weeks. Several contacts reported a notable drop in discretionary spending for big-ticket items such as cars and large appliances, home improvement products, and nonessential groceries. Demand for essential goods remained steady. Reports indicated that many households were cautious with their spending decisions in anticipation of a downturn in labor market conditions. Retailers generally expected sales to soften further over the coming months.
Demand for consumer and business services weakened moderately. Consumer demand for air travel, hotels, and entertainment events slowed—an atypical trend for the early spring growth period. In addition, several contacts reported weak booking volumes for the summer. Restaurant sales varied by segment, with fast-food franchises faring better than full-service establishments. Some retailers and hospitality providers in Northern Washington and Southern California reported a material drop in cross-border tourism with Canada and Mexico. Several reports from the business and professional services sectors highlighted slower demand, including for group travel, security, catering, and janitorial services. One business service provider in Southern California noted that ongoing economic uncertainty resulted in spending cuts and austerity measures from their corporate clients.
Manufacturing
Conditions in the manufacturing sector weakened slightly in recent weeks. Demand softened for some manufactured products such as utility infrastructure components, office furniture, lumber products, and packaging machinery, as customers were feeling more price sensitive and uncertain about economic conditions. In contrast, demand was solid for equipment repair parts. Firms reportedly paused or reduced capital investment plans, citing economic uncertainty and lower demand for their products. However, one manufacturer of packaging machinery kept existing investment plans in place based on higher order pipelines. Materials were largely available with typical lead times. Some manufacturers held inventories at elevated levels to weather rising input cost and availability issues.
Agriculture and Resource-Related Industries
Conditions in the agriculture and resource-related sectors remained mostly unchanged. Retail demand for agricultural products was solid overall. Contacts raised concerns that changes in trade policy could reduce demand for agricultural exports, particularly fruits and nuts. Crop yields were solid, and early indications for this growing season were good. Labor availability was largely sufficient to meet demand, though contacts worried about future availability constraints from changes in immigration policy. Production costs remained elevated due to weather-related disruptions and high input costs. At the same time, prices that growers received for many agricultural commodities, such as corn, wheat, and hay, were reportedly low. Contacts held back on planned capital investments, citing high costs and uncertainty about future prices.
Real Estate and Construction
Slow activity in residential real estate continued. Prices of single-family homes remained high. Nevertheless, demand was reportedly solid in some parts of the Mountain West. Multifamily rents rose in line with inflation. Construction of new residential properties slowed overall. Developers cited higher costs for construction materials as well as uncertainty about economic conditions, including future demand from consumers facing higher home prices and mortgage rates.
Conditions in commercial real estate weakened somewhat. Leasing activity for warehousing, retail, and wholesale space fell as tenants paused expansion plans. Office leasing strengthened slightly. Some landlords reported an increase in rent payment issues as tenants struggled with rising costs. Plans for new construction projects were held back because of tighter availability of materials, increases in costs of some inputs such as steel and lumber, and elevated financing costs. Contractor quotes also rose, reportedly driven by existing and anticipated tariffs. Construction activity remained solid for public projects such as infrastructure.
Financial Institutions
Lending activity was steady. Reports indicated that business clients continued to place most plans for new borrowing and investment on hold in response to ongoing economic uncertainty. Demand for consumer loans, including mortgages, remained generally subdued due to elevated interest rates. Competition for deposits eased of late, and deposit flows were steady. Credit and asset quality were reportedly high despite some uptick in consumer loan delinquencies.
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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