Forex News | Currency News by Forexlive

• Have to find an urgent solution to current crisis in Europe

Oh, and Spain and Italy are not Greece!

–Recommends Shorting High-Yield European debt, 10-year German bunds
–Researchers also Suggest Long euro/Swiss franc trade
–Also backs buying Canadian vs. Japanese equity indexes
–Sees Long July 2012 ICE Brent oil futures at $120/bbl

By Suzanne Cosgrove

CHICAGO (MNI) – In a research note, Goldman Sachs Global Economics
Wednesday unveiled a handful of recommended trades for the year ahead,
including shorting high-yield European debt and 10-year German bunds.

“We think Euro-area economic and financial risks are likely to
remain center stage for now. So our strongest market views are based
around the notion that this pressure will dominate early on,” Goldman
stated in its Global Economics Weekly. “We envisage further near-term
downside to European assets, increased banking pressure and a likely
further increase in Euro-area bond yields, including in the core
economies.”

Detailing its top recommendation, the researchers suggested going
short European high-yield credit (buying protection on the iTraxx
Crossover index), for a target of 950 basis points (with an open at
770bp) and a potential return of 4.5%, putting in a stop at 680bp.

For a No. 2 trade, they suggested short 10-yr German bunds for a
target of 2.8% (with an open of 2.3%) and a potential return of +4.5%
with a stop at 2.0%.

Its No.3 recommendation was to go long euro vs. Swiss franc, with a
target of 1.35.

Goldman said it takes a bearish view of equities, particularly in
Europe, over the next three months. “Our near-term views in all of the
major regions have a defensive flavor, emphasizing areas with strong
balance sheets, low exposure to Europe and relatively low cyclicality,”
Goldman said, adding this view applies even to Asia, where their
economic forecasts remain “benign.” Looking slightly ahead, they said
they are “penciling in” improved performance in equities and higher bond
yields beyond three months.

In addition, Goldman recommends going long Canadian equities (S&P
TSX) vs. Japanese equities (the Nikkei). Researchers also favor long
positions in a global rebalancing basket of currencies: Chinese Yuan
(CNY), Malaysian ringgit (MYR) vs. British pound (GBP), U.S. dollar
(USD).

For its final recommendation, Goldman turned to commodities,
suggesting long July 2012 ICE Brent crude oil futures for a target of
$120 bbl, with a stop at $100 bbl.

–email: scosgrove@marketnews.com

** Market News International Chicago Bureau: (708) 784-1849 **

[TOPICS: M$U$$$,MT$$$$,MI$$$$,MAUDS$]

By Yali N’Diaye

WASHINGTON (MNI)- The Federal Reserve’s latest survey of economic
conditions around the country found that while only one district
reported an economic slowdown, all others reported a growth pace that
was “slow to moderate.”

The so-called “beige book” survey released Wednesday reported that
“Overall economic activity increased at a slow to moderate pace since
the previous report across all Federal Reserve Districts except St.
Louis, which reported a decline in economic activity.”

Against this backdrop, price increases remained “subdued” and wages
and salaries “stable,” said the beige book, summarized by the
Minneapolis Federal Reserve Bank based on what business and banking
contacts told the 12 Federal Reserve districts through November 18.

Activity, while increasing only slowly, increased across the board,
with consumer spending up “modestly.”

Consumers increased their spending on motor vehicles in a number of
districts while “tourism showed signs of strength.”

Nonfinancial services were flat to higher since the October 19
report.

In the industrial sector, manufacturing activity “expanded at a
steady pace,” the Fed said. Energy and mining increased as well.

In the financial sector, “Overall bank lending activity increased
slightly,” the beige book said, adding that “home refinancing grew at a
more rapid pace.”

In real estate, while “sluggish” qualified activity both in the
residential and commercial segments, residential activity “increased”
amid conditions that varied across districts.

Overall, activity trends were consistent with still “subdued”
hiring, “although some firms with open positions reported difficulty
finding qualified applicants.”

While eleven of the 12 districts reported “slow to moderate”
growth, St. Louis reported declines in manufacturing activity, retail
sales, and residential real estate market activity.

Mixed activity in services and commercial real estate were not
enough to brighten the overall picture of a slowing economy since the
last report.

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

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

• IMF’s needn’t coordinate with central banks
• When central banks take decisive action it has effects on markets; that’s what we see today

WASHINGTON (MNI) – The following is the Beige Book report on
economic activity by the Cleveland Federal Reserve Bank, published
Wednesday:

FOURTH DISTRICT – CLEVELAND

Business activity in the Fourth District expanded at a modest pace
since our last report. Manufacturers reported that new orders and
production were stable. Single-family home building remained sluggish,
while construction of multi-family housing rose. Inquiries to
nonresidential builders picked up some, but backlogs are still low.
Retail sales increased slightly. Auto dealers described sales of new and
used vehicles as very good. Shale gas drilling and production continued
to expand. Freight transport volume was stable. The demand for business
credit grew moderately, while consumer loan demand was weak.

Hiring remains at a low level across almost all industry sectors.
Staffing-firm representatives reported modest growth in the number of
new job openings and placements, with vacancies concentrated in
professional business services and energy. Wage pressures are contained.
Respondents noted some upward pressure on prices, especially for metals
and petroleum-based products.

Manufacturing

New orders and production at District factories were stable along
seasonal trends during the past six weeks. Compared to year-ago levels,
output was mainly higher. Most of our contacts are cautious in their
outlook but expect little change in demand during the upcoming months.
Steel producers and service centers reported that shipping volume was
steady or slightly lower, with demand being driven by energy and
industrial equipment industries. Steel representatives remain hopeful
that current volume can be maintained, although some seasonal slowing is
expected. District auto production held steady in October on a
month-over-month basis. Compared to year-ago levels, output rose
moderately, more so for domestic nameplates.

Manufacturers remain committed to their capital spending plans,
with many steel companies expecting to increase outlays during the
upcoming months. Capacity utilization remains below normal at most
factories, while steel producers saw their utilization rates at or near
normal levels. Inventories are in line with sales for a majority of our
contacts. Reports on raw materials prices were mixed. Half of our
respondents said that prices were steady or declining; others told us
that prices continue to rise, but at a slower rate than earlier in the
year. Increases were mainly associated with metals and petroleum-based
products. Changes in raw materials prices were passed through to
customers. New hiring remains at a low level. Those adding to payrolls
found it difficult to recruit highly skilled workers. Wage pressures are
contained.

Construction

Single-family home construction remained sluggish, while activity
in multi-family housing and remodeling expanded. Sales contracts were
mainly in the move-up price-point categories. Several builders reported
that difficulty in obtaining financing is preventing them from adding to
their spec inventory. Little change is expected in residential building
for the next one to two years. Not much difference was seen in the list
prices or discounting of new houses since our last report. The pickup in
hiring by general contractors that occurred late in the summer has
diminished.

Activity in nonresidential construction for small to medium-size
builders was described as steady or slowly improving. While the number
of inquiries has picked up recently, the biggest challenge facing
builders at this time is adding backlog. One contractor commented that
the incubation period for public infrastructure projects can be as long
as five years. Construction contracts were primarily in education,
manufacturing, energy, and research and development. Looking forward,
builders expect modest growth at best during the next six months. We
heard several reports of upward pressure on prices for copper and steel,
though the price of lumber declined. Construction managers are in the
process of laying off seasonal workers.

Consumer Spending

Retailers saw a slight improvement in sales during October, when
compared to September’s results, with several of our contacts noting a
pickup in purchases of cold-weather-related items and home furnishings.
Transactions were also ahead of last years levels, mainly in the
mid-single digits. Looking ahead to the holiday shopping season,
retailers expect stronger sales on a year-over-year basis. We continued
to hear numerous reports about upward pressure on supplier costs,
particularly for packaging, fuel, and agricultural commodities. A few
retailers reported that suppliers have held off passing through the
entire price increase, but they may be less reluctant to do so in 2012.
Retailers were also selective about passing through rising prices to
consumers. Reports on profit margins were mixed. Capital budgets remain
on plan. Most of our contacts said that outlays during 2012 will not
change appreciably from this year’s levels, and that they will be used
mainly for technology enhancements, e-commerce investments, and
remodeling. Little change in payrolls is expected at existing stores.
Seasonal hiring at some stores will be slightly higher than in 2010.

Auto dealers characterized new-vehicle sales during October as very
good, with most of our contacts reporting higher sales volume when
compared to year-ago levels. Demand was strongest for fuel-efficient,
less-expensive cars, and crossover vehicles. Inventories continue to be
rebuilt but remain below what dealers would like. Dealers are cautious
in their outlook due to uncertainty about the economy, and the
availability of vehicles that consumers want to buy. Demand for used
cars is up substantially since the beginning of October; prices remain
elevated. Two dealers noted that there has been a sharp increase in
manufacturers’ incentives, which they attributed to the model-year
changeover. The few dealers looking to hire reported that it is
difficult to find qualified candidates, especially sales representatives
and service technicians.

Banking

Demand for business loans showed a moderate improvement, although a
few community bankers observed some weakening. Requests are being driven
by energy, manufacturing, multi-family housing, and healthcare. Reports
indicate continued downward pressure on interest rates for commercial
credit. On the consumer side, our contacts described installment loan
activity as flat or down; however, direct and indirect auto lending
continued to show strength. Interest rates remain very competitive.
Activity in the residential mortgage market has slowed since our last
report, with most applicants looking to refinance. Many bankers noted a
pickup in the number of applicants who are refinancing into 15-year
mortgages. No changes were made to loan application standards. Overall
core deposits continue to grow, although several bankers reported that
the growth is being driven by business customers. Delinquencies were
steady or declined across loan categories; any stress was mainly on the
consumer side. Payrolls were stable, with little hiring expected in the
near-term.

Energy

Conventional oil and natural gas production rose moderately during
the past six weeks, while drilling was little changed. Our contacts were
somewhat uncertain about future activity due to falling prices for
natural gas. Well-head prices for oil were fairly stable. Activity in
shale-gas extraction continued to expand. One report characterized
production from confirmation wells drilled in Ohio’s Utica shale as
good. Coal output is expected to be stable for the remainder of this
year, though increases are possible in 2012 as a result of growing
demand from export markets and domestic utilities. There is some
uncertainty surrounding utility demand due to abundant supplies of
low-priced natural gas and regulatory compliance issues for coal-fired
generators. Spot prices for coal showed normal fluctuations. Capital
outlays are on target, with moderate increases projected by oil and gas
companies in the upcoming months. The cost of production equipment and
materials was flat during the past six weeks. Energy payrolls held
steady.

Transportation. On balance, freight transport volume was stable
over the past six weeks and up slightly on a year-over-year basis.
Rising demand was seen from the retail and energy (shale gas and coal)
sectors. Our contacts expect volume to grow at a slow, steady pace in
the near term. We heard numerous reports of rising prices for tires,
parts, and equipment, and of some volatility in fuel prices. Much of the
cost increase was recovered via fuel surcharges and rate adjustments
when contracts came due. Capital outlays have accelerated during 2011
relative to prior-year levels. Spending is mainly to replace aging
equipment and to support demand growth, especially from energy
customers. All of our contacts reported hiring for driver replacement or
adding capacity, although recruiting qualified drivers was difficult.
Wage pressures are emerging due to a tightening of the driver pool.

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

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

WASHINGTON (MNI) – The following is the Beige Book report on
economic activity by the Philadelphia Federal Reserve Bank, published
Wednesday:

THIRD DISTRICT – PHILADELPHIA

Business activity in the Third District has returned to a path of
slow overall growth since the previous Beige Book. Following unusual
weather disruptions from an earthquake, a hurricane, and a tropical
storm during late summer, the region was visited again, this time by
a rare early season snowstorm. The weekend storm caused widespread
electric utility outages and disrupted business, but the cold weather
ultimately triggered shoppers’ interest for the winter season. Since
the last Beige Book, manufacturing activity has grown modestly, but
steadily. Retailers reported renewed growth in year-over-year sales.
Motor vehicle dealers experienced strong year-over-year sales growth;
however, Thailand’s recent widespread flooding has caused another
supply disruption of auto parts. Third District banks have reported
slight growth in loan volume outstanding since the last Beige Book. On
balance, new home sales continued below year-ago levels, while
construction activity strengthened since the last Beige Book. Reports
from commercial real estate contacts were more mixed by sector and
location, but slightly positive overall. Service-sector firms reported
generally modest growth. Price pressures remained contained for most
sectors but continued to strain profit margins in all but a few sectors.

Most Third District business contacts had already lowered their
expectations over the past few months V projecting slow to flat growth
through year-end. Ongoing uncertainty since the previous Beige Book has
not significantly altered their outlook. Manufacturers still expect a
modest rise in shipments and orders during the next six months.
Retailers are hopeful for stronger sales, and auto dealers are
uncertain; both have lean inventory plans. Most banking and residential
real estate contacts had lowered their expectations before the last
Beige Book. Commercial real estate contacts and service-sector firms
continue to plan for slow growth; however, uncertainty has increased.

Manufacturing.

Since the last Beige Book, Third District manufacturers have
reported modest increases in new orders and shipments. However, the
improvement was uneven across and within sectors. Steady, modest growth
was reported by various firms that supply or serve manufacturers. These
firms expect continued overall growth from their manufacturing clients,
despite citing ongoing small factory closures. Firms experiencing growth
often cited business returning from China and India, or other market
share gains. Other firms cited growth from Marcellus shale gas activity
or from new product launches. Factors cited as impeding growth included
underfunded public infrastructure, work going to China and India, and
ongoing political uncertainty. The makers of food products, lumber and
wood products, and primary metals reported declining product demand.
Much of their decline is seasonal; they retained positive expectations.

Third District manufacturers expect business conditions to improve
during the next six months, despite persistent uncertainties. Since the
last Beige Book, the general outlook has improved substantially, with
few firms expecting a decline, while most are divided between no change
and some increase. Expectations of capital spending and future hiring
have nearly doubled among area manufacturers.

Retail

Third District retailers reported October sales gains compared with
September as well as with year-ago levels. Cold weather and an early
snowstorm triggered buying of sweaters and other cold weather gear.
Prospects for holiday sales vary with the market segment. High-end,
online, and outlet retailers are most optimistic. However, a concern was
expressed over supply disruptions to some consumer electronics from the
flooding in Thailand. Beyond the holiday season, a conventional mall
retail contact expects sales to be down in 2012 from 2011, while an
outlet mall contact anticipates new mall openings in the fall of 2012
and in 2013.

Auto sales continued to grow steadily in October, according to
Third District auto dealers. The sellers’ market also continued boosting
profits as used cars remained scarce and as supply disruptions are
recurring for Honda and Toyota, this time from Thailand’s floods.
Inventories remained lean. Pent-up demand for Japanese models may delay
a return to normal price competition until well after supply has
normalized.

Finance

Third District bankers have reported slight overall growth in loan
volumes since the previous Beige Book. However, one banker described
margins being squeezed as banks compete for share in a flat market.
Another indicated they were picking up loans as foreign banks retreated
from the market. Prompted by low interest rates, the strongest loan
growth occurred in commercial real estate, home equities, and home
mortgages, especially refinancings. C&I lending was flat. Credit quality
continues to improve but at a slower rate. Among Third District bankers
interviewed in November, business plans for 2012 assume further modest
loan growth and challenging competition within markets.

Real Estate and Construction

Residential building activity has increased somewhat since the
previous Beige Book, while reports on existing homes sales indicated no
change. Existing sales remain lower than last year’s levels. Large
print ads recently touted record low interest rates, low prices, and
high affordability, possibly prompting the flurry of activity noted by
one New Jersey builder. Buyers selected mostly a range of mid- to
high-priced build-to-suit homes. These price points were also strong for
a Pennsylvania builder as were lower-priced multifamily townhomes aimed
at move-up and entry-level buyers. One builder noted that producers of
many construction materials have shut down and that the supply stream
will require 12 to 18 months to start up again after demand for
residential construction picks up. There is no change in the relatively
weak outlook among builders and real estate agents.

Nonresidential real estate sectors reported mixed results with
leasing strength in select markets but few gains in construction.
Investment interest has strengthened in multifamily properties, while
leasing activity grew for trophy office space (desired by large legal
firms) and for research facilities (for new and expanding biotechnology
firms). Demand for retail space continues to weaken. Public
infrastructure spending remains low. Beyond generally weak demand, an
architect cites regulatory burdens for permits and financing as
barriers. New construction or renovation plans are mostly limited to
institutional, life sciences, multifamily, and warehousing sectors in
select markets. Some construction activity for warehousing represents
site relocations within the three-state region. Construction/maintenance
work has also slowed in advance of three anticipated oil refinery
shutdowns. The overall outlook for demand of nonresidential space is for
continued slow growth.

Services

Third District service-sector firms have reported modest growth
since the last Beige Book. Advertising was noted as a little soft with a
particular weakness in retail. Freight volumes continue to grow,
reaching pre-recession levels, according to a logistics firm. Staffing
firms indicated that demand is slowing and that virtually all new
placements are on a temporary or contract basis, rather than permanent,
full-time hires. High-skilled workers, ranging from welders to new hires
with business intelligence skills, remain in short supply. Staffing
contacts expected little or no improvement by years end; one was also
less bullish for 2012.

Prices and Wages. Few price changes have been reported since the
previous Beige Book. One broad business sector supplier announced
widespread price hikes for early December. Pricing power remains
favorable for freight shippers and auto dealers. Most other sectors
report very tight margins, although cost factors have generally remained
flat. A few exceptions include cotton products for retailers and drywall
for builders. Many bankers, builders, and leasing agents continued to
report expectations for concessions from borrowers, buyers, and renters,
respectively. Staffing firms reported no upward pressure on wages.

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

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

A two notch cut… Remains on watch for a further downgrade.

• Debt to GDP ratio to soar to 117% in 2013 from 91%

WASHINGTON (MNI) – The following is the Beige Book report on
economic activity by the New York Federal Reserve Bank, published
Wednesday:

SECOND DISTRICT – NEW YORK

The Second District’s economy has continued to grow slowly since
the last report, while the labor market has generally been stable.
Manufacturers report that general business conditions and employment
levels have been steady in recent weeks but that they plan to add
workers in the months ahead. Consumer spending has continued to expand
at a moderate pace: auto dealers report that sales were steady to
stronger in October, non-auto retail contacts report that sales have
been on or ahead of plan, and tourism activity has been generally
robust. Home sales and prices have generally held steady since the last
report, though rental markets continued to strengthen. Commercial real
estate markets have shown slight signs of softening. New York City
financial firms continue to face adverse business conditions and have
announced impending layoffs. Finally, bankers report a pickup in demand
for commercial mortgage loans, continued tightening in credit standards,
and lower delinquency rates on commercial and industrial loans.

Consumer Spending

Non-auto retailers report that same store sales were mostly on or
ahead of plan in October and the first half of November but little
changed from a year earlier. Contacts at major malls in upstate New York
indicate that sales activity was mixed in October but appeared to
improve in the early part of November. One large retail chain indicates
that sales in the region were down slightly from a year earlier in
October and early November but still somewhat ahead of plan. Retail
inventories are generally said to be at desired levels, while prices are
reported to be flat to down slightly. Auto dealers in upstate New York
report that sales were steady to stronger in October and that dealers
service and parts departments continue to perform well.

Consumer confidence has weakened noticeably since the last report.
Both Siena College’s October survey of New York State residents and the
Conference Board’s survey covering the Middle Atlantic states (NY, NJ,
PA) show consumer confidence falling to its lowest level in more than a
year.

Tourism activity has been generally robust since the last report.
Albany-area hotels report strong improvement in occupancy rates in
September. New York City hotels report that occupancy rates were steady
at about 90 percent in September and October, up modestly from 2010
levels; room rates were up roughly 4 percent from a year earlier in
October and total revenues were up about 6 percent. However, Broadway
theaters report that attendance fell 5-10 percent below year ago levels
in October and early November, in part reflecting fewer shows open this
year. Still, total revenues have continued to run ahead of 2010 levels,
reflecting double-digit percentage increases in revenues per show.

Construction and Real Estate

Residential real estate markets have been stable, on balance, since
the last report, while home construction activity remains
low, particularly for single-family homes. New York City’s rental
market continues to strengthen: asking rents remained on an upward trend
up in October and were up 5 to 10 percent from comparable 2010 levels.
Scattered reports from elsewhere in the District also point to
strengthening rental markets. Co-op and condo prices in Manhattan and
Brooklyn were mostly steady since the last report, while transactions
activity dipped in October but turned up in early November. In northern
New Jersey, home prices are reported to be down modestly, hampered by a
glut of distressed properties; while fewer home mortgages are moving
into delinquency status recently, there remains a large overhang of
distressed properties. New home construction remains at a low level,
with multi-family rental buildings accounting for most new
development in both New York City and northern New Jersey. Buffalo-area
Realtors report steady home sales activity but some downward drift in
prices; they also note a pickup in traffic at open houses.

Commercial real estate markets have been steady to slightly weaker
since the last report. Office vacancy rates in both midtown and downtown
Manhattan ticked up in October; the average asking rent continued to
climb, but this is attributed to the fact that much of the space
recently coming on the market is in high-priced buildings. A contact in
western New York State reports that commercial leasing activity remains
flat, while commercial construction activity has picked up slightly but
remains sluggish; credit availability continues to be a restraining
factor for the market.

Other Business Activity

According to an industry contact, financial sector conditions
remain adverse, with several thousand layoffs reportedly in the pipeline
in the New York City area. This contact notes that regulatory
uncertainty is hampering planning and causing shifts in resources among
areas. While securities firms are reducing headcounts overall, they are
still hiring in the legal and compliance areas. A major New York City
employment agency reports that the job market has held steady since the
last report with hiring activity described as moderate in October.
Starting salaries have remained stable over the past year.

Both manufacturers and service-sector firms continue to report
stable employment levels but indicate plans to increase headcounts, on
balance, over the next six months. Manufacturing firms across New York
State report that general business conditions have held steady over the
past month, and they express increased optimism about the near term
outlook. Non-manufacturing contacts are also increasingly optimistic
about the near-term outlook, though less so than manufacturers.

Financial Developments

Small to medium-sized banks in the District report increased demand
for commercial mortgages but no change in demand in other loan
categories. Bankers also reported an increase in the demand for
refinancing. Respondents report tightening credit standards in all
categories except residential mortgages, for which they indicate no
change. Tightening of standards was most prevalent for commercial
mortgages. Contacts report decreases in spreads of loan rates over costs
of funds for all loan categories. Respondents also indicate widespread
decreases in average deposit rates. Bankers report declining delinquency
rates for commercial and industrial loans, but no change in
delinquencies for the other loan categories.

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

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

WASHINGTON (MNI) – The following is the second and final section of
the Beige Book report on economic activity by the Boston Federal Reserve
Bank, published Wednesday:

Staffing Services

First District staffing contacts report mixed activity through the
end of October, with some experiencing downticks and others posting
modest increases. Year-over-year revenue changes vary widely, from flat
to up by more than 25 percent. Labor demand is generally flat relative
to three months ago, although a few contacts report upticks in the
software-IT, manufacturing, and legal sectors. Demand for permanent and
temporary-to-permanent hiring continues to grow. Supply of high-end
labor remains tight in the region, and a few contacts report difficulty
finding medical assistants, CNC operators, and welders. Bill rates and
pay rates are steady or up slightly, with most contacts attributing
increases to more high-end placements as well as a tight supply of
skilled workers. First District staffing contacts say they believe that
the labor market is performing better in New England than in the nation
as a whole; they express hope for more consistent growth in 2012.

Commercial Real Estate

The majority of contacts in the First District describe conditions
in commercial real estate markets as roughly unchanged since the last
report, although some note small improvements in fundamentals. In
Hartford, vacancy rates for Class A downtown office space continue to
hover around 20 percent and leasing demand remains muted in light of a
flat labor market. In Boston, office leasing activity is roughly steady
at a moderate pace, although tenants reportedly lack a sense of urgency
to sign deals. Bostons Back Bay and East Cambridge submarkets continue
to show strong demand and relatively low vacancy rates, with the result
that rents on Class A office space in Back Bay now exceed those for
comparable space in Bostons financial district, where vacancy rates
remain in the mid-teens. Portland saw modest absorption of retail and
Class B office space and in recent weeks amid strong overall leasing
volume, while some new vacancies arose in the Class A office market.
Leasing demand tapered off in recent weeks in Providence, as suburban
Rhode Island experienced a modest uptick in leasing activity.

The investment sales market remains strong in Boston, as prices
edge slightly higher for prime office and apartment buildings. Apartment
construction in greater Boston remains very active, with numerous
developments in progress and more new buildings in the pipeline,
although other construction activity remains limited throughout the
region. The lending environment continues to offer plentiful
financingXand on increasingly favorable termsXfor premier properties,
especially in Boston, while financing remains harder to obtain for
riskier properties and those in secondary and tertiary markets.

Residential Real Estate

Sales activity in New England for single-family homes and
condominiums continues to languish according to contacts throughout the
region. Sales figures rose moderately in September compared to a year
ago, but these increases reflect several months of dismal sales
following the expiration of the tax credit in mid-2010. Respondents say
housing market conditions have remained largely unchanged in the last
several months. Most contacts characterize the market as stable and
consistent, but believe the beginning of a recovery remains fairly
distant. While low interest rates have made financing more affordable to
qualified homebuyers, contacts report tighter credit standards as a
constraint. The median sale price of homes also rose in September from a
year earlier in the region, except for Rhode Island, where prices have
been below year-earlier levels for several months. October data for the
Greater Boston area, by contrast, show a 10.5 percent year-over-year
decline in the median sale price of homes.

Outlooks for the remainder of the year are mixed, with some
contacts anticipating 2011 sales falling short of last year and others
predicting sales to reach last years level. Respondents expect
relatively stable prices in the coming months, but note the possibility
of moderate declines.

(2 of 2)

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

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

WASHINGTON (MNI) – The following is the Beige Book report on
economic activity by the Boston Federal Reserve Bank, published
Wednesday:

FIRST DISTRICT – BOSTON

Most business contacts in the First District continue to report
year-over-year revenue increases, but an uncertain outlook. Responding
retailers cite mixed results and increased optimism about 2012;
manufacturing contacts, by contrast, say they are uncertain about the
outlook even though most current results remain good. Software and IT
services companies continue to see good demand growth, while results are
mixed, though mostly positive, for staffing firms. Real estate markets
remain subdued. With the exception of software and IT services, contacts
say their firms are doing mostly replacement hiring; some cite
difficulty in filling specific skilled jobs. Cost pressures are said to
be modest.

Retail and Tourism

First District retailers contacted in mid-November express less
uncertainty about recent business trends than they did in early October;
their estimates of 2011 annual sales are generally more positive and the
2012 outlook is more optimistic than last time. One large retailer
selling both durable and nondurable goods reports that third quarter
comparable store sales were up 3 percent over 2010:Q3. Another durable
goods retailer reports that sales in recent weeks have been almost 5
percent above what they consider the benchmark for a solid sales week.
Notably, a couple of contacts who last time expected 2011 sales gains of
4 percent or 6.5 percent from 2010 have now revised their estimates
upward to between 7.5 percent and 8 percent. With one exception,
responding consumer-goods retailers expect final 2011 sales to range
from 6 percent to 8 percent over 2010, but one foresees annual 2011
sales to track 1 percent to 9 percent lower than 2010. Respondents say
that consumers are regaining some confidence, although such comments are
still tempered with caution, particularly regarding durable goods
purchases. Budgeted pay increases range from 2 percent to 3.3 percent.
Some contacts report ongoing wholesale price increases, while others say
cost increases have moderated.

The travel and tourism sector continues to see strength in overseas
and business travel, while discretionary domestic leisure spending is
fueled by the affluent consumer. One weak spot is booking for
end-of-the-year holiday parties. Hotel bookings for 2012 remain strong.
The September tourism slowdown noted in the last round of calls seems to
have been temporary. This contact continues to expect 2011 tourism
growth of 5 percent to 8 percent over 2010 and predicts 2012 tourism
revenues to be 10 to 12 percent above 2011.

Manufacturing and Related Services

The First District manufacturing picture remains mixed. On the
whole, contacts report relatively strong performance continuing in
recent months, but ongoing concern about potential weakness in the
global economy is tempering growth forecasts and leading to only limited
capital investment and hiring activity. Of the firms contacted this
month, all but one recorded sales growth year-on-year and many report
double-digit growth. The growth is broad-based geographically; most
firms report strongest growth in Asia, followed by domestic sales, but
even Europe results remain fairly robust, despite the sovereign debt
crisis. One contact making laboratory instruments commented that
wreports of Europes demise are premature but others are less
sanguine about Europe. A major supplier to the auto industry reports a
September year-on-year sales decline in Europe of 7 percent, but a
year-to-date European sales increase of 11 percent, only slightly less
than the almost-13 percent recorded in Asia.

The pricing picture continues to improve. Materials price increases
and shortages that characterized the sector in 2010 are said to have
largely subsided. One contact in the chemical business says that input
costs are “falling like a rock” and attributes the attenuation to
China “wputting the brakes on.” A semiconductor contact says that while
the price escalation and shortages of rare-earth elements endemic at the
beginning of the year are no longer a problem, prices remain high. A
laboratory-instrument maker says that high energy prices are leading
them to shift freight from air to ships. In general, contacts say they
have little trouble passing price increases on to customers. Respondents
who cite falling input prices also report increased downward price
pressures on the output side.

Manufacturers in the First District are hiring in general but not a
lot; most report hiring only selectively to fill vacancies. Only one
firm is laying off workers. A contact supplying the auto industry had
planned to increase headcount 3 percent in 2012 but has now decided to
freeze hiring, approving no new positions and abandoning approved but
unfilled positions. Several firms cite trouble finding qualified staff,
generally for technical positions, with one contact in the industrial
motor business saying that larger firms are wpoaching machinists from
a North Carolina plant. A pharmaceutical firm reports problems finding
technical staff and also accountants and other less specialized skills.

Contacts do not, in general, report any major changes to their
capital spending plans. Several firms mention increased expenditure on
information technology, including two who are installing new ERP
(enterprise resource planning) software systems. One contact in
industrial distribution said that the purpose of the increased
investment is to wgrow the business without increasing headcount.
Several firms report significant capital expenditures overseas,
generally with the goal of supplying overseas markets.

The outlook for 2012 is very cloudy. Virtually all of our
manufacturing contacts express misgivings. Some are concerned about the
crisis in Europe but others express the vague fears that have
characterized our conversations over the last 18 months. A contact in
the semiconductor industry says there is less wvisibility than at any
previous juncture. Most firms have not officially revised their
forecasts for 2012 and continue to plan for growth. A chemical industry
contact says he is “following his head and not his stomach” because,
by the numbers, 2012 looks promising but his experience and intuition
tell him otherwise. A contact in the industrial motor business says that
their “book-to-bill” ratio is 1.07, so backlog is growing, but he
describes himself as “wworried.”

Software and Information Technology Services

New England software and information technology contacts report
continued growth, with year-over-year revenue increases ranging from
mid-single digits to 20 percent in the most recent quarter. Contacts
report upticks in demand across the board, including in the
manufacturing, financial, and medical sectors. Increased activity has
led all contacts to increase their headcounts relative to a year ago,
many by over 5 percent; at the same time, many report continued
difficulty in attracting and retaining qualified software engineers,
programmers, and sales personnel. Respondents report annual wage
increases for most employees between 3 percent and 5 percent, with one
firm increasing the wages of software engineers by more. Many contacts
express renewed concerns regarding the federal budget and the European
debt crisis. Nonetheless, First District software and IT contacts are
generally more optimistic than they were three months ago. With strong
order pipelines, most are expecting revenue in early 2012 to be 10
percent to 20 percent higher than in early 2011.

-more- (1 of 2)

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

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