Summary of Economic Activity
Economic activity in the Twelfth District was somewhat subdued but largely stable during the mid-May to June reporting period. Employment levels were slightly lower on net with more firms under a hiring freeze and using attrition and layoffs to reduce headcount. Wages continued to grow at a slight pace, and prices rose modestly. Retail sales expanded modestly, and activity in consumer and business services eased. Activity in manufacturing and the residential real estate market weakened somewhat. Conditions in agriculture, commercial real estate, and the financial sector were largely unchanged and deteriorated further in the nonprofit sector. Looking ahead, contacts reported making contingency plans in response to economic uncertainty and an expected pickup in inflation.
Labor Markets
Employment levels were slightly lower on net over the reporting period. Employers across many industries and geographies reported instituting a hiring freeze and using attrition to reduce headcounts. Critical positions, however, were still being filled, and firms generally reported no problems hiring in recent weeks except for very specialized roles. A few contacts in the manufacturing and entertainment sectors reported layoffs due to lower demand. Nonetheless, employment growth in retail and food services remained solid, supported by summer seasonal factors. Contacts in the service and manufacturing sectors noted additional investment in automation and AI, reducing their demand for workers on net. Employee turnover continued to decline.
Wages continued to grow at a slight pace. Firms generally described demand and supply for labor being in better balance, increasing employers’ bargaining power. Contacts in agriculture, food services, health care, and retail reported steady wages, while some financial services and transportation firms noted higher wages, especially for entry-level positions. A contact in agriculture highlighted that a new federal guideline on the wages of seasonal foreign workers might lower their labor costs going forward.
Prices
Prices rose modestly, similar to the previous reporting period. Price increases were reported across a wide range of industries, including manufacturing, health care, real estate, and financial services. Insurance prices rose notably, and modest increases were reported in fresh food prices. Higher tariffs, particularly for companies using hardware components, intensified the pressure on their final prices, leading some manufacturers to include an explicit tariff surcharge. The cost of raw materials remained elevated, although prices for lumber and manufactured wood products were reportedly depressed. Contacts from the airline industry highlighted lower-than-expected summer airfares.
Community Conditions
Conditions deteriorated further in the nonprofit sector. The cancellation of federal grants and a continued drop in charitable donations pushed several nonprofit organizations across the District to reduce staff levels and program offerings. Some reports highlighted the impact from recent enforcement of immigration policies on overall conditions in affected communities and small businesses that serve them. For example, contacts highlighted more cases of worker absenteeism and declines in foot traffic in both urban and farming communities. Demand for mental health services and housing assistance programs remained elevated across regions in the District. Food insecurity rose somewhat in rural and urban Mountain West communities.
Retail Trade and Services
Sales of retail goods expanded modestly, a noticeable pickup relative to the previous reporting period. Demand for food, apparel, and footwear trended up, with promotions continuing to drive sales in some instances. Demand at home centers was stable despite generally subdued construction activity. Some retailers reported shrinking their inventories in anticipation of future price increases and lower customer demand for their products.
Activity in consumer and business services eased somewhat in recent weeks. Demand for business and leisure travel moderated further, and summer air travel volumes were lower than expected. Several contacts in tourism and hospitality noted a broad-based slowing of activity in the District, including the Las Vegas area, which had been expected to remain more robust through this summer. Demand for other services also ticked down, including those for restaurants and legal counsel. Conversely, activity in health-care services and medical testing was unchanged, and demand for custodial and security services picked up. Additionally, contacts in facilities support highlighted higher demand for sustainable options for food services and facility maintenance from their clients.
Manufacturing
Activity in the manufacturing sector softened somewhat in recent weeks. Higher economic uncertainty led many businesses to defer capital spending and put projects on hold. As a result, demand weakened for many manufacturers’ products, including furniture, machines, and wood products. Additionally, bad weather in parts of the United States put an additional strain on construction and lowered demand for manufactured wood. Conditions in metal production and packaging machinery were largely unchanged.
Agriculture and Resource-Related Industries
Conditions were weak overall in agriculture and resource-related sectors but unchanged from the prior reporting period. While exports benefited from a weaker dollar, the overall demand from abroad for fresh produce and tree nuts was below typical levels. Domestic markets remained solid, but excess supply stemming from weak export markets pulled prices down and led some farmers to hold off on investing in new equipment. Demand for California wine was reportedly down domestically and abroad, resulting in lower selling prices, reduced seeding, and the removal of some existing vineyards. Several contacts highlighted continued issues with credit availability in agriculture, particularly for smaller growers in the Pacific Northwest and Mountain West.
Real Estate and Construction
Residential real estate activity weakened slightly in recent weeks. While demand remained solid for single-family homes, sales were hampered by limited availability and high mortgage rates. Supply of multifamily housing across the District expanded further as more units were completed, pushing down rents in some markets. New construction activity was generally limited in most regions. However, large industrial and infrastructure projects in the Mountain West, such as the building of new data centers and chip fabrication plants, supported single-family home construction in specific areas within that region.
Commercial real estate markets remained weak and were generally unchanged from the prior reporting period. Demand for industrial, office, and retail spaces was muted, which brought down asking rents in some markets. Nevertheless, leasing of retail spaces in some urban areas in the Mountain West was generally stable. Commercial construction activity remained slow in the private sector as builders and clients adopted a wait-and-see approach regarding trade policy and its effects on overall economic conditions, including the availability of materials and construction costs. Construction activity for public sector projects such as transportation and utilities remained solid.
Financial Institutions
Lending activity was subdued and largely unchanged. Demand for commercial and industrial loans was reportedly restrained by elevated longer-term interest rates. Demand for consumer loans, including mortgages, remained generally muted. Competition for deposits picked up lately throughout the District, with some contacts attributing this intensification to a recent episode of easing asset growth restrictions. Credit quality remained in line with historical averages and access to credit was high, although some credit unions reported a moderate uptick in consumer delinquencies. Availability of credit was particularly lower for businesses in the agriculture sector and more generally for small businesses overall relative to larger firms. Venture capital dealmaking was reportedly strong for GenAI-focused companies.
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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