WASHINGTON (MNI) – The following is the second and final part of
the text of the summary of the Federal Reserve’s Beige Book survey
published Wednesday:

Real Estate and Construction

Nearly all Districts reported sluggish housing markets in the
months since the homebuyer tax credit expired on April 30. While some
Districts, such as Boston and St. Louis, reported an increase in May and
June home sales on a year-over-year basis, some contacts noted that
these sales may reflect closings of homes under contract by the April
tax credit deadline. The Boston, Philadelphia, Atlanta, and Kansas City
Districts reported that home sales are expected to weaken going forward.
Residential construction remained limited in several Districts. In the
Atlanta District, residential construction activity softened from
already weak levels. Homebuilders in the Cleveland District do not
expect a turnaround in new home construction any time this year.
Builders in the Chicago District are not introducing new inventory
without a signed contract on a home. Housing starts were expected to
decline for the second half of the year in the Dallas District and to
increase slightly over the next three months in the Kansas City
District.

Commercial and industrial real estate markets continued to struggle
in all twelve Districts. Overall, vacancy rates were flat to slightly
increased and continued to exert downward pressure on rents.
Construction activity remained weak in most Districts. The New York
District noted that commercial development remained generally sluggish
despite some pickup in office and retail leasing in New York City.
Atlanta, Minneapolis, and Dallas reported that construction activity
continued to be weak or to decline, and Cleveland reported that the
increase in construction from previous reports has begun to diminish.
Philadelphia reported that projects funded with federal stimulus support
were near completion with no prospects for additional major
construction, while Chicago reported that public infrastructure
construction picked up. Developers reported difficult credit conditions
in the Cleveland, Richmond, St. Louis, and Kansas City Districts, while
the Dallas District reported a few developers going out of business. The
outlook for commercial and industrial real estate across the Districts
ranged from further declines in activity to slow growth.

Banking and Finance

Reports on banking conditions were largely mixed across the
Districts. Banking activity in Richmond and loan demand in Kansas City
increased modestly. Overall loan demand was reported as soft or weak in
Cleveland, Atlanta, and Dallas, while total outstanding loan volume
decreased in recent months in St. Louis but was steady in Philadelphia
and San Francisco. Demand for commercial loans was flat to increasing in
the Philadelphia, Cleveland, Richmond, Chicago, and Kansas City
Districts; in contrast, St. Louis reported a decrease in commercial
loans outstanding, while New York, Atlanta, and San Francisco reported
restrained or decreasing demand in this lending category. Demand for
consumer loans was weak in Cleveland and eased in Philadelphia; Atlanta
and St. Louis indicated a decline in consumer lending; but demand for
consumer loans increased in New York and Kansas City. Demand for
residential mortgage loans eased in the Philadelphia District but
increased in the New York District; Cleveland reported residential
mortgage activity below expectations at given rates; and real estate
lending decreased in St. Louis. Credit was limited for commercial real
estate loans in Chicago, and demand fell for these loans in New York and
Kansas City.

Most Districts reporting on credit standards continued to note that
lending standards remain restrictive. New York reported tighter credit
standards for all categories except consumer loans, while Kansas City
reported tighter commercial lending standards. Reports on credit quality
were mixed in Cleveland and Kansas City, while quality was stable in San
Francisco. Credit quality improved slightly in Philadelphia, Richmond,
and Chicago. In the Dallas District, nonperforming loans have stabilized
and are not expected to worsen. Meanwhile, Philadelphia, Cleveland, and
Richmond continued to report delinquencies above historic norms.
Delinquency rates in the New York District decreased for consumer loans
but experienced little or no change in other categories.

Agriculture and Natural Resources

Recent rains improved the dry conditions in the Minneapolis and
Dallas Districts and reduced irrigation needs in the Kansas City
District. In contrast, excess precipitation caused some crop damage in
the Chicago District and some delays in the winter wheat harvest in the
Kansas City District. Parts of the Atlanta District experienced some
crop stress due to dryness and heat. Contacts reported that crops were
in good condition overall in the Atlanta, Minneapolis, Kansas City, and
Dallas Districts, but crop conditions worsened slightly in recent weeks
in the Chicago District and were mixed in the St. Louis District
compared with last year. Producers in the Chicago District continued to
expect good yields for their corn and soybean crops, and the outlook for
cotton yields in the Dallas District has improved.

Overall, activity in the energy sector increased since the previous
report. Oil production in the Atlanta District and oil and natural gas
production in the Cleveland District were relatively unchanged, but
other activity picked up throughout the Districts during the reporting
period. The number of drilling rigs increased in the Dallas District,
and production continued to expand in the Kansas City District.
Additionally, oil exploration in the Minneapolis District and oil
extraction in the San Francisco District increased. Activity in the
Minneapolis District’s mining sector increased in recent weeks, as did
production and demand for coal in the Cleveland District. Kansas City
reported that contacts expect to see continued growth in energy
production.

Labor Markets, Wages, and Prices

Labor market conditions improved gradually in several Districts.
New York, Chicago, Minneapolis, Richmond, and Atlanta all reported that
labor markets improved, albeit modestly in some cases, while Boston and
Dallas reported that employment was steady. Philadelphia, Atlanta,
Richmond, Chicago, and Minneapolis reported that temporary employment
experienced increased demand. Contacts in the Philadelphia, Atlanta,
Dallas, and San Francisco Districts said that they continued to rely on
temporary staff over permanent hires. Cleveland, Richmond, and Chicago
saw hiring in the manufacturing sector. Cleveland also reported some new
job openings in the healthcare industry. Boston and Cleveland noted that
firms in some services viii industries were hiring mostly for
replacement. Dallas reported that firms in the energy industry
experienced significant regional layoffs as a result of the deepwater
drilling moratorium. San Francisco noted continued high levels of
unemployment and limited hiring.

Wage pressures remained largely contained across most Districts.
Boston, Philadelphia, Richmond, Minneapolis, and San Francisco reported
little or no change in wages, while Cleveland, Chicago, and Kansas City
reported that wage pressures were small or remained subdued. Dallas
reported that wage pressures were mostly nonexistent, with the exception
of the airline industry.

Prices of final goods and services were relatively stable in most
Districts. Several Districts indicated that prices of raw materials also
held steady, and only a few Districts reported input price increases.
Steel prices moved slightly higher in the San Francisco District, but
Cleveland and Chicago reported that steel prices were down. Chicago and
San Francisco noted an increase in energy prices, but Atlanta reported
that energy prices were mostly stable since the onset of the Gulf oil
spill. Increased prices were noted for some metals by the Philadelphia,
Minneapolis, and San Francisco Districts. Transportation costs increased
in the Atlanta, Dallas, and San Francisco Districts, and the Richmond
District noted that shipping lines were attempting to raise rates.

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

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