WASHINGTON (MNI) – The following is the text of the Fourth District
Beige Book summary of current economic conditions, published Wednesday:


On balance, economic activity in the Fourth District showed a
slight improvement during the past six weeks. Manufacturers reported
that new orders and production levels were stable or marginally lower.
An uptick was seen in residential and nonresidential construction, while
retailers and auto dealers experienced a small rise in sales. Reports
from energy producers and freight haulers were generally favorable.
Demand by businesses and consumers for new loans remained weak.

The pace of new hiring has diminished, with only scattered reports
of increased payrolls from manufacturers, nonresidential builders, and
auto dealers. Overall, staffing-firm representatives noted little change
in the number of new job openings, with available openings concentrated
in healthcare and the skilled trades. Wage pressures continue to be
contained. Apart from a rise in steel and agricultural commodity prices,
raw materials and product pricing were generally stable.


Reports from District factories show that production levels were
mainly steady or down slightly during the past six weeks. Changes in new
orders mirrored those in output. Production was higher on a
year-over-year basis, with several contacts citing doubledigit
increases. A large majority of respondents expect output will stay at
current levels for the near term. Those anticipating a drop in
production attributed it primarily to seasonal factors or the continuing
slump in residential construction. Most steel producers and service
centers reported that volume was stable or increasing. Shipments are
being driven by energy-related, auto, and heavy equipment industries.
Construction volume remains weak. Although underlying uncertainty
exists, more than half of our steel contacts expect that the current
level of business activity is sustainable in the near term. District
auto production showed a large drop in July on a month-over-month basis,
due to retooling for model changeovers. In terms of year-over-year
comparisons, production rose substantially for both domestic and foreign
nameplates. Only minor shifts in inventories were noted, mostly on the
up side. A majority of our contacts stated that utilization rates remain
below pre-recession levels, with little change during the past few
weeks. Capital outlays continue at relatively low levels, with any
significant increases due to investment projects that had been
previously delayed. Steel producers and service center representatives
reported that raw material prices are rising, although most indicated
that their product pricing remains reasonably stable. A few have
announced price increases that will go into effect as early as
September. Other than a sharp rise in agricultural commodity prices, raw
material costs have been fairly steady. We heard only scattered reports
of companies hiring new workers, although several firms have extended
work hours. Wage pressures are contained.

Real Estate.

An uptick was seen in new home construction during the past six
weeks and it is on par with year-ago levels. Homebuilders expect
construction to remain sluggish going into 2011. Tight credit markets
continue to hamper contractors from purchasing land or constructing spec
houses. Our contacts tell us that the move-up price-point category is
outperforming the entry-level and third-time home-buyer categories. New
home prices have shown little movement since our last report and on a
year-over-year basis. Other than reductions in lumber prices,
construction material costs held steady. General contractors and
subcontractors continue to work with very lean crews.

Reports by nonresidential builders indicate some improvement in
construction activity since our last report. When comparing to year-ago
levels, activity is as good or better according to almost all of our
contacts. Backlogs are reasonably healthy, though two builders noted
that their backlogs are being depleted at a rapid pace. Inquiries and
new projects generally fall within the industrial and education
categories. Most of our contacts expect little change in business
conditions during the next 6 to 12 months, citing some weakness in
inquiries and uncertainty about economic growth. Reports of a small
increase in construction material costs, especially for steel, were
widespread, and the availability of project financing has improved
slightly. General contractors cited an uptick in payrolls.
Subcontractors remain underutilized and are taking on projects at cost.

Consumer Spending.

For the period from mid-July through mid-August, retail sales
generally showed some improvement when compared to the previous 30-day
period. Purchases rose slightly on a year-over-year basis. Still,
consumers remain cautious in their purchases and are focusing on
value-priced seasonal items. Going into the fourth quarter, retailers
expect conservative sales growth. Two of our contacts noted modest price
increases by their suppliers, which they have passed through to
consumers. Margins are up slightly for most of our contacts. Other than
replacement workers, retailers plan no additional hiring until the
holiday season. Auto dealers saw new vehicle sales strengthen from
mid-July through mid-August, when compared with the previous 30 days.
Reports also showed improving sales on a year-over-year basis.
Expectations call for vehicle purchases to stabilize at current levels
in the upcoming months. Many dealers continue to say that their
inventories are at low levels. Used vehicle purchases are beginning to
soften. Interest rates for auto loans are competitive, although
arranging financing for customers with less than high credit ratings
remains a challenge. Several auto dealers noted that they are
undertaking facility upgrades to comply with OEM demands, and they are
doing incremental hiring to meet customer demand.


The market for business lending remains soft, with bankers
generally characterizing the demand for new commercial and industrial
loans as steady or slowly improving. Commercial real estate lending is
particularly weak. Interest rates moved by only a few basis points. On
the consumer side, conventional loan demand is weak. Those seeing an
uptick attributed it mainly to consumers looking for home equity loans
and competitive pricing. Most of our contacts said that the demand for
residential mortgage refinancing is very strong, while new-purchase
mortgage originations continue at a slow pace. Core deposits held steady
or increased at almost all banks, with much of the growth occurring in
transaction accounts. Reports on credit quality were mixed, while
delinquency rates declined somewhat. Employment rolls and wages showed
little change.


Reports indicate steady to moderate increases in oil and natural
gas output during the past six weeks, with output expected to remain at
current levels in the near term. A big push is on to lease large tracts
of farmland in eastern Ohio counties for the Marcellus Shale play.
Farmers are being offered well-above average market rates for drilling
rights. Spot prices for oil and natural gas are flat or down slightly.
Coal production has been stable since our last report, with little
change expected. Although summer cooling demand grew significantly from
year-ago levels, resulting in stockpiles being drawn-down to normal
levels, utilities have not increased their coal purchases. Metallurgical
coal shipments to Brazil and Asia were characterized as very strong.
Prices for coal were mixed but are tending to the up side. Credit
availability is affecting capital spending: A coal producer canceled a
machinery purchase because he could not obtain financing, while an
energy company is expanding drilling operations due to a successful
refinancing. Staffing levels are steady, and little hiring is expected
in the near future.


Freight transport executives reported continuing favorable volume
trends, though the rate of growth seen in the past few months is
slowing. Expectations call for current volume to be sustained in the
near term. Two executives noted that they have been able to successfully
negotiate rate increases, resulting in some improvement to their bottom
lines. Several of our contacts reported that quoted prices for tractors
and trailers have risen substantially, due mainly to complying with new
environmental standards. However, these price increases may push back
time tables for purchasing replacement equipment until sometime in 2011.
Otherwise, only modest price increases were noted for materials and
services used by freight haulers. Current hiring is for replacement
only, not adding capacity.

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