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

Construction and Real Estate

Home sales continued to slide since the last report. Contacts noted
demand was especially weak in the lower-priced segment of the market
which had benefitted most from the homebuyer tax credits. Construction
of new homes fell as large public builders scaled back. Outlooks are
guarded for the rest of the year. Sales and construction are expected to
remain weak, as the tax credit affected the timing of purchase
decisions.

Contacts in the office and industrial real estate sectors said
leasing activity remained subdued. Investor interest in nonresidential
properties remains high however, and contacts say sales continue to edge
up.

Nonresidential construction remains weak. Contacts reported a
notable lack of private nonresidential projects. Public construction is
the main source of activity for most contacts, but some expressed
concern that such projects would subside due to budget constraints.
Financial Services Financial firms said loan demand continued to trail
off. Business lending was especially weak, and contacts said businesses
lacked confidence and were unwilling to make financial commitments.
Deposit growth was strong, and credit quality on outstanding loans was
stable. Several respondents reported concerns over financial reform
legislation and other political uncertainties. Earnings projections are
flat for 2011, and some contacts were building up loan loss reserves in
preparation for the coming year.

Energy Drilling activity in the Eleventh District rose since the
last report. The Permian Basin in Texas led the increase, as activity
continues to be directed to land-based oil. Drilling service companies
noted solid demand and improved margins. Contacts noted that the deep
water drilling moratorium will impact revenues, but strong domestic land
and international activity is mitigating the impact. Agriculture Hot,
dry weather reduced soil moisture in most of the District, but drought
conditions are minimal. Respondents said crop conditions remain very
strong, and yields for harvested crops are above average. A record
cotton crop is expected for Texas this year. Demand for U.S.
agricultural products has picked up in the wake of the devastating flood
in Pakistan and drought in Russia, and most commodity prices have moved
up as a result.

(2 of 2)

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

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