WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Eleventh District summary, published
Wednesday:

ELEVENTH DISTRICT-DALLAS

Business conditions continued to improve in the Eleventh District.
Activity in manufacturing, staffing services, transportation services,
housing and energy grew modestly. Retail sales were flat to slightly
down but in line with retailers’ expectations during the reporting
period. While outlooks remained positive, contacts from some industries
noted concerns about how the European debt crisis and recent stock
market volatility would affect future business.

Prices

Most contacts said prices were holding steady, although some paper,
fabricated metals, and aircraft and parts manufacturers reported slight
increases in selling prices. Contacts at department stores said less
discounting was taking place. Input and raw material costs were
generally stable, but there were reports of an uptick in the cost of
lumber, food, engineered metal products, linerboard, steel and some
industrial metals. Firms’ ability to pass on these cost increases
remained limited.

Crude oil prices dropped from $85 per barrel in early April to near
$70 in late May. Natural gas prices were flat during the reporting
period. Sharp increases in the price of petrochemicals such as ethylene
and propylene seen earlier are reversing as ethylene plants come back
online and refineries increase utilization rates. Declining prices have
spurred export demand for U.S. petrochemicals and related products.

Labor Market

Employment levels held steady at several respondent firms and there
were a few reports of hiring activity. Staffing firms continued to cite
increased demand for their services, and some contacts in transportation
services, automotive sales, transportation and construction-related
manufacturing said they had either added a few employees or planned on
hiring additional workers. Wage pressures remained subdued, with the
exception of the airline industry. Many firms are continuing with salary
or 401(k) contribution freezes, although a few noted that they planned
on giving small pay increases this year. In addition, staffing firms
reported that pay rates were stable.

Manufacturing

Most construction-related manufacturers said demand ticked up from
low levels. Orders from the public sector and homebuilding industry have
improved but demand for commercial construction materials remains weak.
A few contacts said they were slowly increasing work hours or capacity
utilization rates. Although there is still caution among contacts,
outlooks were slightly more optimistic than the last report. Fabricated
metals producers cited continued increases in demand, and reported that
large government-related projects have boosted the sales outlook for the
next three months.

Some high-tech manufacturers noted slight easing in export demand
due to the European fiscal crisis, while others said orders continued to
grow at a consistently strong pace. Inventories were reported to be
under control and one semiconductor respondent said they were able to
increase inventories to desired levels. Most respondents remain
optimistic that demand will be strong over the next six months but noted
that the outlook has become more uncertain due to fiscal problems in
Europe.

Producers of trailers said continued strength in demand has boosted
the outlook over the next three months. Manufacturers of aircrafts and
parts said orders from the commercial and general aviation industry have
improved, while demand for government and military aircraft remains
weak. An aircraft repair and maintenance firm said demand strengthened
over the past month, and is expected to rise further over the next three
months.

Reports from paper manufacturers were mixed. Most respondents
reported strong demand while one corrugated box manufacturer noted a
decline in orders. Food producers noted an increase in orders.
Inventories are at desired levels but some food manufacturers said
stocking up for certain items has been an issue due to the recent
acceleration in demand.

Petrochemical producers cited improved domestic demand for most
products except for polyvinyl chloride, which is tied to commercial and
residential construction. Demand for oil products is above yearago
levels, and refinery capacity utilization rates have risen from the low
80 percent range in early April to the high 80s in late May. Refinery
margins have improved and are at their highest levels for the year.

Retail Sales Retail activity was flat to slightly down but in line
with contacts’ expectations during the reporting period. Contacts say
the decline in sales was largely due to Easter pulling sales forward
into March. Department store sales were flat despite strong demand for
apparel and accessories. Most contacts say Texas sales are faring
slightly better than the national average, and same-store sales are on
track to hit low single-digit nominal growth this year. The outlook is
for gradual improvement for the remainder of the year, with some concern
over the impact of Europe’s fiscal situation on consumer confidence.

Automobile dealers said sales ticked up since the last report.
Inventories remain lean. Prices have been inching upwards due to some
pullback in incentives introduced earlier. Contacts expect demand will
gradually improve through the end of the year.

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** Market News International Washington Bureau: 202-371-2121 **

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