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

Summary

Economic activity in the Twelfth District appeared to post further
modest growth during the reporting period of September through early
October, although conditions in many sectors remained weak. Price
increases for final goods and services were quite limited, and upward
pressures on wages were virtually nonexistent. Demand for retail items
and services continued to strengthen somewhat, but sales remained
lackluster overall. Manufacturing activity in the District firmed a bit
further on balance. Sales were robust for agricultural products, while
demand was largely stable for energy resources. Activity in District
housing markets remained sluggish, and demand for commercial real estate
stayed weak. Contacts from financial institutions reported largely
stable lending activity.

Wages and Prices

Upward price pressures were very limited on net during the
reporting period. Commodity prices changed little in general, with the
exceptions of continued increases in grain prices and rising prices for
metals, particularly copper. Contacts pointed to very limited pricing
power for most retail items and service categories, as final prices
continued to be held down by weak demand and extensive competition.
Upward wage pressures were largely absent, although reports pointed to
further increases in the costs of employee benefits, particularly health
care. High unemployment and limited demand for new employees held down
compensation gains in most regions and sectors. Contacts in most sectors
expect that ongoing productivity gains and cost efficiencies will
largely offset the need for staffing increases in the near term.
However, a few contacts noted that some firms have reached the limits of
productivity gains from current staff and will need to add workers as
product demand improves.

Retail Trade and Services

Retail sales remained sluggish but improved somewhat on balance.
Both traditional department stores and discount retail chains reported
modest improvements in sales, although somewhat elevated inventories
were noted; moderately priced items such as selected home and garden
products reportedly saw the strongest gains. By contrast, retailers of
major appliances and furniture reported a further slowdown in activity
and expressed pessimism for a reversal over the remainder of the
calendar year. Grocery sales were characterized as largely flat, with
consumers focused on bargains, and grocers do not anticipate any change
in customer buying patterns for the foreseeable future. Sales of new
domestic and imported automobiles improved a bit, with dealers citing
replacement of broken-down or leased vehicles as key motivating factors
for purchases.

Demand for services continued to improve modestly. Sales grew for
providers of technology services, spurred in part by business
investments to enhance production efficiency. Contacts in the restaurant
and food services industry noted continued slight gains in activity.
Demand for professional, media, and entertainment services held largely
steady overall. Providers of energy services reported increased
deliveries to businesses and households, and activity picked up somewhat
for providers of trucking services. Conditions in the District’s travel
and tourism sector improved further. Visitor volumes and hotel occupancy
rates rose in several of the District’s major markets, spurred largely
by significant growth in business travel and convention activity.

Manufacturing

District manufacturing activity expanded further on balance during
the reporting period of September through early October. For
manufacturers of semiconductors and other technology products, demand
continued to grow, although the pace of growth slowed a bit and
inventories rose slightly. Extensive order backlogs continued to keep
production rates at or near capacity limits for manufacturers of
commercial aircraft and parts. Demand firmed further for metal
fabricators, although capacity utilization remained well below normal.
Activity at petroleum refineries slowed a bit and inventories rose, as
seasonal declines in domestic demand were only partly offset by
increased overseas demand. Conditions in the wood products industry
remained depressed.

Agriculture and Resource-related Industries

Sales of agricultural products continued at a brisk pace, and
demand appeared to hold steady on net for natural resources used for
energy production. Final sales and orders for most types of agricultural
products continued to be robust, and input costs stayed largely stable.
Unfavorable weather conditions and consequent supply restrictions for
overseas producers have boosted sales for domestic producers of corn and
food grains. Demand for crude oil fell slightly, largely as a result of
the normal end-of-summer lull, but extraction activity for natural gas
rose further.

Real Estate and Construction

Housing demand in the District appeared to be little changed from
the previous reporting period, and demand for commercial real estate
remained largely stable at very low levels. The pace of home sales
continued to be mixed across areas but mostly unchanged on balance. In
response to sluggish sales, new home construction has stayed quite
subdued, although contacts reported slightly expanded activity for home
repairs and remodeling. Conditions in commercial real estate markets
generally remained weak, as vacancy rates stayed at very high levels in
many parts of the District. Although slight declines in total space
availability were reported for some areas, tenants continued to receive
rent concessions and other favorable terms in many cases.

Financial Institutions

Reports from District banking contacts indicated that loan demand
was largely unchanged compared with the prior reporting period. Demand
for commercial and industrial loans continued to be restrained by
businesses’ cautious approach to capital spending and desire to
deleverage. Consumer loan demand also remained weak overall, although
contacts noted an uptick in demand for nonconforming mortgage loans.
While lending standards stayed relatively restrictive for business and
consumer lending, the reports suggested some loosening of credit
standards for select groups of borrowers. Contacts also pointed to an
uptick in financing for corporate acquisitions as well as further modest
expansion in IPO activity.

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

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