WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Twelfth District, published
Wednesday:

TWELFTH DISTRICT-SAN FRANCISCO

Summary

Economic activity in the Twelfth District grew at a modest pace
during the reporting period of mid-August through late-September. Upward
price pressures remained limited overall, and upward wage pressures
remained muted. Sales of retail items rose slightly, and demand for most
business and consumer services gained further on net. District
manufacturing activity edged up. Agricultural output was mostly steady,
while activity continued to trend up for providers of energy resources.
Home demand in the District showed continued signs of improvement, and
demand for commercial real estate was mainly stable. Financial
institutions reported overall loan demand was unchanged or up somewhat
on balance.

Wages and Prices

Price inflation remained quite limited for most final goods and
services during the reporting period. Prices increased overall for some
energy items including electricity, crude oil, and retail gasoline.
Natural gas prices remained near historically low levels. Contacts noted
high feed prices are passing through to grocery stores and restaurants.
Contacts in the tech sector reported slightly lower prices of some
technology-related products. For most products and services, vigorous
competition among firms and cost-conscious purchasing behavior by
consumers continued to keep price inflation in check.

Contacts in most sectors reported very limited upward wage
pressures. Moderate wage increases in the 2 to 3 percent range were
noted for employees in some manufacturing sectors, although lower levels
of staffing were also reported. Contacts continued to note wage gains
for workers with specialized skills in the information technology
sector. Some upward pressure on wages of skilled construction workers
was noted, as well. For the remainder of 2012, most contacts reported
limited hiring plans, suggesting that upward wage pressures will remain
subdued.

Retail Trade and Services

Retail sales rose further overall. Contacts reported sales were a
bit stronger relative to the prior reporting period. Discount chains and
online retailers continued to outperform traditional department stores.
At grocery stores, consumer spending was soft as shoppers continued to
shift their purchasing decisions in favor of cheaper products. Contacts
reported a strong pace for auto sales, significantly above the pace from
the same period last year. Demand for used vehicles also remained
robust.

Demand for most business and consumer services gained on net. Sales
continued to grow for a wide variety of technology services, with
expectations for further rapid growth in selected segments, such as
cloud computing services. Demand for legal services was steady. For
providers of health-care services, demand was largely stable. Demand
picked up further for restaurants and other food-service providers. Some
contacts in the District’s travel and tourism sector reported
improvement in conditions overall.

Manufacturing

District manufacturing activity edged up on balance during the
reporting period of mid-August through late-September. Production
activity remained at high levels for makers of commercial aircraft and
parts. Manufacturers of wood products reported stronger than expected
output and sales. New orders improved somewhat for manufacturers of
semiconductors and other technology products. Demand for steel was
mostly stable, albeit at low levels, while sales of processed scrap
metal fell further, largely as a result of sustained weak demand abroad.
For petroleum refiners, capacity utilization rates increased to the
highest levels in years, as growing export sales offset relatively weak
domestic demand for refined petroleum products.

Agriculture and Resource-related Industries

Agricultural activity was mostly stable, and extraction activity of
natural resources used for energy production continued to expand.
Contacts noted continued efforts by agricultural businesses to increase
their productivity. Reports indicated that demand for cotton was strong.
Higher grain and feed prices prompted District livestock producers to
reduce herd sizes. Favorable weather conditions in some parts of the
District helped stabilize production. Extraction activity for petroleum
and natural gas remained at high levels or expanded a bit further on
net.

Real Estate and Construction

Home demand in the District showed continued signs of improvement,
while demand for commercial real estate was largely unchanged. Although
still well below its historical average, the sales pace for new and
existing homes picked up further in many areas. Contacts noted that
pent-up demand may spur additional gains in coming months. Contacts
reported a decrease in the inventory of available homes and a noticeable
increase in construction activity. On the nonresidential side, contacts
observed a reduction in commercial property vacancies in parts of the
District.

Financial Institutions

District banking contacts reported that loan demand was unchanged
or up somewhat compared with the prior reporting period. Some contacts
reported that business loan demand inched up, although some of the new
activity was for refinancing rather than expansion. Reports continued to
highlight ample liquidity and stiff competition among lenders to provide
credit to well-qualified business loan applicants. Contacts indicated
that some borrowers received multiple offers to finance projects. Demand
for consumer credit remained relatively strong, reflected primarily in
high lending activity for automobile and home purchases.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]