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

Economic activity continued to improve since the last report across
all twelve Federal Reserve Districts, although many Districts described
the pace of growth as “modest.” Consumer spending and tourism activity
generally increased. Business spending also rose, on net, with
employment and capital spending edging up but inventory investment
slowing. By sector, nonfinancial services, manufacturing, and
transportation continued to gradually improve. Residential real estate
activity in many Districts was buoyed by the April deadline for the
homebuyer tax credit. Commercial real estate remained weak, although
some Districts reported an increase in leasing. Financial activity was
little changed on balance, although a few Districts noted a modest
increase in lending. Spring planting was generally ahead of the normal
pace, while conditions in the natural resource sectors varied across the
Districts. Prices of final goods and services were largely stable as
higher input costs were not being passed along to customers and wage
pressures continued to be minimal.

Consumer Spending and Tourism. Consumer spending improved from the
previous report. Spending continued to be concentrated in necessities as
opposed to discretionary big-ticket items. Retail sales increased in
April and May, although several Districts noted that the gains were
uneven across months. Sales of spring and summer apparel were strong in
the Boston, New York, Philadelphia, St. Louis, Kansas City, and Dallas
Districts. Sales of home improvement and lawn and garden equipment were
reported to have strengthened in the Richmond, Chicago, and San
Francisco Districts. Modest improvement in sales of discretionary home
goods was noted by Cleveland, Kansas City, and San Francisco. Vehicle
sales also rose, but the rate of increase reportedly slowed in May in
the New York, Cleveland, and San Francisco Districts. Tourism activity
improved. Dallas reported a continued increase in leisure air travel.
Hotel occupancy rates rose in the New York, Atlanta, Chicago, Kansas
City, and San Francisco Districts, and convention activity increased in
Atlanta and San Francisco. Richmond reported resort bookings for the
Memorial Day holiday weekend were stronger than last year, and Atlanta
indicated cruise-line bookings were up slightly. Atlanta also reported,
however, that the Gulf oil spill and Tennessee floods had already
resulted in some vacation lodging cancellations. The potential exists
for a much greater impact, although contacts are quite uncertain as to
the ultimate effects.

Business Spending. Business spending increased moderately from the
previous report. Cleveland, Chicago and Dallas noted that growth in
manufacturers’ inventories was leveling off, while Boston, Atlanta, and
St. Louis reported the same for retailers’ inventories. In contrast,
several Districts reported that auto production was failing to keep up
with demand, pressuring already lean auto dealer stocks. Capital
spending was slightly higher in a number of Districts, although several
indicated that continuing caution on the part of firms and tight credit
availability were limiting expenditures. The manufacturing,
transportation, and energy industries accounted for most of the increase
in spending on plant and equipment. Boston reported that spending on
information technology services increased.

Nonfinancial Services. Nonfinancial service activity was slightly
improved, on balance, from the previous report. Several Districts
highlighted some strength in demand for professional technical services,
such as software and information technology, engineering, and other
scientific trades. In contrast, sluggishness remained in accounting,
legal, marketing, media, and construction services. Demand for business
support services was more mixed. Philadelphia and Chicago reported
slightly higher demand while Boston and St. Louis noted that demand
remained weak. St. Louis also indicated that budget cuts had led to
reduced government and education services.

Manufacturing and Transportation. Manufacturing and transportation
activity continued to gradually improve across all twelve Districts.
Most Districts reported further increases in factory production,
shipments, and new orders, although Philadelphia and Chicago noted that
the pace of gains had slowed in May. Steel producers and metals
manufacturers reported moderately higher production in Cleveland,
Chicago, St. Louis, and Dallas, although Chicago indicated capacity
utilization leveled off in May. Auto and parts production increased in
the Cleveland, Richmond, and Chicago Districts. Oil refinery capacity
utilization was up in the Dallas District. Higher residential
construction increased demand for construction equipment and materials
in the Philadelphia, Richmond, Chicago, Dallas, and San Francisco
Districts. Chicago also noted that demand from Asia and South America
for heavy equipment continued to be robust. The output of medical
equipment and pharmaceuticals remained strong in Boston and Chicago, as
did high-tech manufacturing in Boston, St. Louis, Kansas City, and San
Francisco. Food processing increased in Dallas and San Francisco.
Trucking and rail activity increased, with freight traffic and raw
material shipments on the rise in Cleveland, Atlanta, and Dallas.

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

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