Economic activity in the Federal Reserve's Twelfth District showed almost no movement during July and mid-August, according to a new Beige Book report released by the San Francisco Fed. The report describes a regional economy marked by flat growth, stable employment, and modest price increases driven by oil costs and tariffs. Businesses maintained a generally pessimistic outlook, with sentiment unchanged from the previous reporting period.
Employment levels remained largely flat across the District, with most firms reporting no staffing changes and a few implementing hiring freezes. Wages climbed slightly, often matching the pace of inflation as workers pushed to keep up with the rising cost of living. Prices rose at a modest rate, driven by elevated oil prices that affected shipping and raw materials, as well as ongoing tariffs that particularly impacted retail and manufacturing sectors. Retail sales held steady overall, though consumer demand shifted toward value-oriented retailers and dining out declined across restaurant types. Activity in consumer and business services eased slightly, with demand for basic facility services like custodial and food declining, while specialized technical services saw increased interest. Residential real estate activity dropped somewhat, with single-family home sales decreasing slightly in many areas and multifamily rentals taking longer to fill. Commercial real estate activity remained stable, though office space demand stayed low, especially in secondary markets. Overall lending activity was stable, with solid demand for business and commercial loans but a decline in mortgage activity.
The report notes that plentiful applicant pools and generally high applicant quality made most roles easy to fill, including seasonal agricultural work. According to the San Francisco Fed, productivity gains were attributed in roughly equal measure to new AI tools, particularly for administrative and analytical office work, and to factors unrelated to AI such as process improvements and training. Community-serving organizations continued to face heightened demand for support, especially for housing, food, and utilities, while the number of uninsured rose, increasing the need for health care assistance. The report also indicates that obtaining funding from government sources remained difficult for nonprofit organizations.
The report explains that higher borrowing costs, elevated insurance expenses, and generally high home prices all contributed to the slowdown in residential real estate demand. Some developers with approved building permits chose to delay starting projects until borrowing costs fall. Uncertainty around tariff policies created challenges for manufacturers' production planning, while shipping costs for raw materials and finished products stayed high. In agriculture, prices that producers received for commodity crops and beef remained below production costs in many cases, with smaller producers facing particular difficulty accessing capital and focusing spending on repairs rather than upgrades. One insurance contact suggested that prices for health care services and private insurance coverage rose to compensate for reductions in federal funding, illustrating how policy shifts are rippling through service sectors.
The report offers little optimism about near-term prospects. Contacts maintained a generally soft economic outlook, with sentiment similar to the prior period. Competition for deposits remained intense, keeping deposit rate offers elevated, while some banks noted declining consumer account balances and higher credit card debt levels. The combination of flat growth, policy uncertainty, and cost pressures suggests the Twelfth District economy is treading water rather than gaining momentum.