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

ELEVENTH DISTRICT — DALLAS

Overview The Eleventh District economy expanded modestly over the
past six weeks. The energy sector remained a source of strength, and
agriculture, transportation services and staffing firms reported solid
growth. Retailers said sales rose, but the pace of growth was slower.
Reports from the manufacturing sector were mixed, but overall suggest a
slowdown. In particular, construction-related manufacturers said demand
was very weak as housing demand has retrenched and private
nonresidential activity is almost nonexistent. Most respondents expect
economic conditions to remain positive, although many expect slower
growth through year-end. Uncertainty was prevalent in most outlooks.

Prices

Selling prices held steady at most responding firms. Retailers said
prices were flat and airline fares stabilized after increases earlier in
the year. Contacts across industries said pricing was extremely
competitive. There were, however, scattered reports of price increases
in a few industries. Paper producers and aircraft manufacturers said
they were able to pass on increased input costs. Additionally, prices
for some petrochemical products rose slightly. Some staffing firms were
attempting to raise fees due to strong demand. Contacts in the
agricultural industry said commodity prices had moved up recently.
Cotton prices are up nearly 50 percent over last year and cattle prices
have risen strongly. Crude oil prices fell below $73 per barrel by late
August after a run up to $82 earlier in the month. The price of
gasoline, diesel and heating oil fell during the reporting period, as
inventories rose due to weak demand. Contacts said natural gas prices
edged down to just under $4 per Mcf by late August as the national
heat-wave subsided.

Labor Market

Employment levels were stable at most firms, and the overall labor
market remained somewhat slack. Some contacts in the lumber and trailer
manufacturing industries reported layoffs. On a more positive note,
there were scattered reports of hiring activity. Staffing firms cited
continued increases in placement activity, and a few contacts in
transportation services, legal services, automobile sales, and
transportation manufacturing said they had added workers. Wage pressures
were generally nonexistent, with exceptions found in the airline
industry and for some temporary workers. Manufacturing Most producers of
construction-related materialsincluding brick, lumber, cement, glass
and primary and fabricated metalssaid conditions remained weak. Several
respondents tied to housing construction said orders were especially low
in July because of the vacuum created by the end of the tax credit.
Contacts that produce products used in nonresidential construction noted
most activity was related to public projects. Outlooks were slightly
more pessimistic than in the last report, with several contacts
expecting no turnaround until 2012. A primary metals producer that sells
to transportation manufacturers was more upbeat and expects increased
orders in coming months.

Manufacturers of high-tech products said demand held steady over
the past six weeks. Growth in orders has leveled off in recent months
after a replenishment of inventories earlier in the year that drove very
strong growth. Most respondents characterize current order levels as
good. Although inventories have increased, respondents said they are
relatively lean and in some cases below desired levels. Several
semiconductor contacts said that industry-wide capacity has fallen about
30 percent over the past three years and, even with growing capital
expenditures, capacity utilization is likely to remain very high for the
next two to three years. Outlooks were positive for the remainder of the
year. Paper manufacturers reported flat to declining sales over the past
six weeks. Contacts said customers are very cautious about keeping
inventories, due to pessimistic economic outlooks. Growth in demand for
food products stalled since the last report. Respondents said they did
not see the normal summer boost this year.

Non-defense aircraft manufacturers said orders held steady over the
past six weeks and are above year-ago levels. Outlooks were cautiously
optimistic. Trailer producers said demand had fallen as uncertainty
about the national economy increased. Sales are expected to be slow
through year-end. Petrochemical producers were mostly optimistic, noting
domestic orders were strong and growing. Export growth was positive but
slower, as current prices were less competitive in Europe and Asia. The
only reported weakness was for vinyl products used in housing and
commercial construction. Refiners noted weaker conditions as seasonal
gains in gasoline consumption did not materialize and distillate (diesel
and heating oil) consumption slipped back. Contacts expect a decline in
capacity utilization rates and refining runs due to weaker margins.

Retail

Retailers noted that growth has slowed recently, but sales are up
on a year-over-year basis. Customers continue to focus on
non-discretionary items while shunning big-ticket purchases. Eleventh
District sales trended slightly above the nation over the reporting
period, a change from the previous report. Outlooks suggest that while
sales growth may be slower for the remainder of the year; overall 2010
sales should show positive single-digit growth. Automobile demand held
steady over the reporting period. Contacts said inventories are at
appropriate levels and manufacturers are incrementally increasing
production. Expectations are for continued modest improvement.

Services

Most staffing firms report that demand continues to grow at a solid
pace, and is particularly strong for light industrial, sales,
administrative, professional and technical workers. Placement activity
continues to be mostly for contract work as employers are still hesitant
to hire permanent staff. Near-term outlooks are optimistic, but
respondents are cautious about the longer term. Accounting firms note
that while demand for tax-related services has slowed seasonally and
that for real estate and construction-related work remains nonexistent,
there has been a pickup in transactional and consulting activity. Demand
for legal services was largely unchanged during the reporting period,
with the exception of an uptick in corporate demand for mergers and
acquisitions-related activity. Demand for transportation services
remains positive. Railroad respondents noted a broad-based increase in
cargo volumes, with shipments of grain products recording the largest
increase. Shipping firms said small parcel cargo volumes rose, while
large freight shipments declined during the reporting period. Intermodal
transportation firms reported a modest increase in shipments. Airline
traffic was flat to slightly down since the last report, but is stronger
than a year ago. The outlook is for continued stability in air travel
demand.

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

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