WASHINGTON (MNI) – The following is second of three sections of the
summary of the Beige Book survey of Federal Reserve districts, published
Wednesday:

Manufacturing firms in the Philadelphia, Richmond, and Atlanta
Districts reported somewhat slower rates of growth overall. However, the
Philadelphia District reported a lull early in the period, followed by
resumption of a slow rate of growth in early July, while the Richmond
District reported moderate gains, which stalled in early July.
Manufacturing firms in the New York District reported a pause in growth
throughout the period.

Manufacturing firms’ expectations of future activity were
optimistic in the Boston and Philadelphia Districts, although Bostons
firms were less positive than in the previous Beige Book, and
Philadelphias firms were more positive. Firms in the Boston District
indicated limited plans for capital spending, while firms in the
Philadelphia, Cleveland, Chicago, and Dallas Districts maintained plans
for capital spending at prior levels. Fewer firms in the Cleveland
District were reporting delays to project starts for their capital
spending plans.

Real Estate and Construction

Residential real estate sales in almost all Districts were little
changed from the last Beige Book. Activity edged up in the Richmond,
Atlanta, and Minneapolis Districts. Of the Districts reporting on home
prices, most said that they were flat or declining. The Boston and
Richmond Districts reported steady prices; the Philadelphia and Atlanta
Districts reported that prices were steady to down slightly; and the
Kansas City and New York Districts reported that prices were down.
Increasing inventories of unsold homes in the Boston, New York, and
Kansas City Districts have restrained building in the singlefamily
housing sector. Residential construction activity overall was mixed,
though it increased in the Minneapolis District. Since the previous
Beige Book, construction and activity in the residential rental market
have continued to improve in the New York, Chicago, Dallas, and San
Francisco Districts.

Nonresidential real estate activity improved somewhat in the
Boston, Philadelphia, Cleveland, Chicago, St. Louis, and Dallas
Districts. The Chicago District reported strong demand for industrial
facilities, particularly from the automotive sector. The Philadelphia
District reported improvements in terms of lower vacancy rates for
office space, industrial space, and apartments; the Chicago District
reported generally lower vacancy rates. The New York, Richmond, Atlanta,
Minneapolis, Kansas City, and San Francisco Districts all reported
generally weak activity in nonresidential real estate. Construction in
the Minneapolis District stalled in areas because of flooding and
unavailability of state building inspectors due to the Minnesota state
government shutdown. Health care and apartment construction was a bright
spot for the Atlanta District. Activity was weak in the Kansas City
District, but firms that supply construction materials reported
increased sales and stable prices. San Francisco reported stable but
high vacancy rates in many parts of the District.

Banking and Finance

Reports of loan demand were more mixed than in the previous Beige
Book. The New York, Richmond, and Chicago Districts reported overall
increases in loan demand but from different sources. Commercial and
industrial loans accounted for the growth in the New York District,
while consumer loans accounted for the growth in the Chicago District.
Loan growth in the Richmond District was driven by consumer lending,
real estate loans for apartments, and commercial loans for larger
companies. Total loan volume decreased in the St. Louis and Kansas City
Districts, reflecting decreases in real estate lending and individual
loans in St. Louis and reductions in consumer installment, commercial
real estate, and commercial and industrial loans in Kansas City. The
Philadelphia, Dallas, and San Francisco Districts reported relatively
little overall change in loan volume, while the Cleveland and Atlanta
Districts reported mixed results. Outside of banking, the San Francisco
District indicated increased investment activity by venture capital
firms and higher levels of IPO activity.

Credit conditions have changed little since the previous Beige
Book. Banks in the New York, Cleveland, Richmond, Chicago, and Dallas
Districts reported that credit quality was flat or somewhat improved.
Bankers in the Richmond, Atlanta, Chicago, Dallas, and San Francisco
Districts noted that competition among lenders for high-quality
borrowers was squeezing banks margins and lowering the cost of capital
for those borrowers. Bank contacts in the New York, Atlanta, Chicago,
Kansas City, and San Francisco Districts indicated that credit standards
were mostly unchanged at tight levels, but the Cleveland District heard
a few reports of easing standards for good borrowers.

Agriculture and Natural Resources

Severe drought conditions adversely affected parts of the Atlanta,
Kansas City, Dallas, and San Francisco Districts, causing low crop
yields, complete crop losses, wildfires, and loss of grazing land in
many areas. The Kansas City, Dallas, and San Francisco Districts
reported that ranchers had culled herds or placed cattle on feed lots in
response to poor pasture conditions, despite higher feed lot costs that
trim their margins. Meanwhile, the Chicago and Minneapolis Districts
noted that flooding had caused millions of acres to go unplanted. The
Atlanta District reported that rain brought relief to some stressed
pastures and crops, but farm labor shortages had impaired Georgias
fruit and vegetable production. The St. Louis District reported fair or
better conditions for corn, soybean, sorghum, rice, and cotton crops,
plus an increase from 2010 in its winter wheat production. Kansas City
reported good or better conditions for corn and soybean crops.
Agricultural prices were mixed since the last report, with the Chicago
and Minneapolis Districts reporting lower cattle and wheat prices, while
soybean and dairy prices were up. Chicago also reported higher prices
for hogs.

Activity in the energy sector remained strong. Shale exploration
increased in the Atlanta and Cleveland Districts. The Cleveland District
also reported little change in the production of oil, natural gas, or
coal, despite rising demand for coal. The St. Louis District reported
higher coal production than the prior year. The Minneapolis District
reported continued strong mining activity and mixed plans for wind farms
and biodiesel. The Kansas City District reported expanded drilling
activity and higher ethanol production but weak coal production. The
Dallas District also reported strong drilling activity, and the San
Francisco District reported strong activity for metal mining, along with
oil and gas extraction.

-more- (2 of 3)

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

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