WASHINGTON (MNI) – The following is the second and final section of
the text of the summary of the latest Federal Reserve Beige Book summary
of economic conditions, published Wednesday:

Real Estate and Construction

Residential real estate and construction activity remained at a low
level in all Districts. The Philadelphia, Atlanta, St. Louis, and
Minneapolis Districts reported some further weakening in home sales.
Boston, New York, and Richmond characterized the market as soft; while
Cleveland, Kansas City, Dallas, and San Francisco described the market
as sluggish. The Chicago District reported that high inventories of
unsold homes continued to be a drag on new residential construction and
home prices. Residential house prices were mixed. Price declines were
observed in New York, Philadelphia, Atlanta, and Kansas City; prices
were flat to up in Minneapolis, and prices edged up in Boston. The
Dallas District reported that home prices increased on a year-over-year
basis. The rental market continued to offer incentives to tenants in New
York, while strong demand for rental units was reported in Richmond and
Dallas. Outlooks for 2011 were mixed.

Conditions in the commercial real estate industry were mixed during
the reporting period. Several Districts reported flat demand and high
vacancy rates, which translated into limited nonresidential construction
activity. The New York, Atlanta, and Kansas City Districts noted some
weakening in nonresidential activity, while the Boston and Dallas
Districts indicated some modest improvement in commercial real estate.
Reports from Cleveland and Chicago noted that most new projects fell
generally into the infrastructure category. Contacts in Boston,
Richmond, Kansas City, and Dallas expressed some optimism about the
near-term outlook in their Districts, but contacts in several other
Districts expressed a more cautious outlook.

Banking and Finance

Banking conditions remained stable across most Districts. Lending
activity was reported as steady or unchanged in New York, Philadelphia,
St. Louis, Kansas City, Dallas, and San Francisco, while a slight
improvement was noted in Cleveland, Richmond and Chicago. The Atlanta
District reported constrained credit conditions and weak loan demand.
Contacts in Chicago and Dallas said that increased competition for
high-quality borrowers resulted in more aggressive loan pricing. Demand
for commercial and industrial loans was generally stable, though several
Districts noted improvements in specific loan categories. The Cleveland
and Chicago Districts reported increased lending for mergers and
acquisitions, and access to credit by small businesses in Atlanta
improved slightly. Consumer lending has remained stable at weak levels
in most Districts. The San Francisco District reported that loan demand
declined slightly as a result of households’ desire to deleverage, while
Chicago saw a small pickup in consumer lending. Several Districts
reported increases in lending related to residential real estate, and,
in particular, to refinancing activity. Reports on changes in credit
standards were mixed. Bankers in New York reported a tightening in
credit standards across all loan categories, Kansas City contacts
indicated no change in lending standards, and Atlanta reported an easing
in standards for small firms. Contacts in the Cleveland, Richmond, and
Chicago Districts reported improved credit quality, but San Francisco
bankers noted ongoing struggles with credit quality. The Cleveland and
Richmond Districts both reported declines in delinquencies.

Agriculture and Natural Resources

Mainly favorable weather conditions helped facilitate early
harvesting and the planting of winter crops. The Chicago, Minneapolis,
and Dallas Districts reported large to record-setting yields for certain
crops. Agricultural prices continued to climb, boosting farm incomes.
Reports from several Districts indicated that higher grain prices were
raising feed costs for livestock producers. Nonetheless, contacts in
Chicago noted that even with higher feed costs, margins for livestock
producers remain positive. Strong global demand and tight supplies
pushed cotton prices to near historic highs for growers in Atlanta and
Dallas. San Francisco noted that reductions in overseas yields, combined
with the lower value of the U.S. dollar, are helping boost domestic farm
sales.

Activity in the energy sector was expanding. The number of active
drilling rigs increased in the Atlanta, Kansas City, and Dallas
Districts. Although producers are interested in returning to the Gulf of
Mexico, drilling remains well below pre-oil spill levels as permit
issuance lags. Producers in Kansas City expressed concern about future
production due to labor and equipment shortages. Cleveland reported an
increase in production from Marcellus shale. In the Minneapolis
District, wind energy continued to expand, but at a slower pace than a
year ago, while mining activity increased.

Labor and Prices

Hiring activity showed some improvement across most Districts,
although employers are waiting for clearer signals of expanding business
prospects before adding significantly to payrolls. A preference for
part-time and temporary workers was reported in the Atlanta and Chicago
Districts. Seasonal hiring in retail trade is expected to be higher this
year in Chicago and San Francisco than in the previous two years.
Employers in the Boston, Richmond, and Minneapolis Districts reported
having difficulty finding skilled workers. Employment agencies in the
New York, Richmond, and Chicago Districts reported a moderate increase
in new job openings, while staffing firms in Dallas said that hiring
activity is strong. Boston staffing contacts noted that labor demand has
strengthened, particularly in the information technology, medical,
manufacturing, and legal sectors. Wage pressures remain subdued across
Districts. Contacts in Richmond and Kansas City noted that they expect
little change in wage pressures during the upcoming months. However,
employers in San Francisco reported significant increases in employee
benefit costs. Prices of final goods and services were fairly stable
across Districts despite rising input costs, especially for agricultural
commodities, metals, and fuel. Companies in the Atlanta, Chicago, Kansas
City, and San Francisco Districts reported a limited ability to pass
through higher input costs to customers given the relative softness in
demand. However, some manufacturers in the Boston, Cleveland, and
Atlanta Districts have announced plans to raise their product prices in
the near future. Retailers in Philadelphia and San Francisco noted price
increases on selected products imported from Asian countries. Reports
from the Chicago and Dallas Districts indicated that that record-high
inventories and forecasts for a warmer-than-normal winter are putting
downward pressure on natural gas prices.

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

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