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

Business contacts in the First District report stable to increasing
activity in recent months compared with a year earlier, with most citing
increases. Retail contacts note some potholes in the recovery path, but
generally positive sales results; most responding manufacturers,
staffing firms, and software and information technology services
providers are also seeing recent or continued revenue growth. Home sales
and prices are advancing, although contacts attribute most of the
increases to homebuyers’ tax credits; commercial real estate markets are
also improving. Some firms are hiring beyond replacement and/or
re-instituting merit-based pay increases. Firms’ selling prices are
generally stable. Notwithstanding positive trends, the outlook remains
cautious.

Retail

Contacted retailers in the First District report flat to positive
sales results for the months of March, April and early May;
year-over-year same-store sales increases range from zero to about 10
percent. A few contacts characterize sales as volatile, and even those
retailers reporting increases note some periods of slowing sales. All
respondents mention weak sales for big-ticket items, but say that sales
of core consumables, household items, or clothing are strong. Most
contacts are cautiously optimistic regarding the next few months, but
express concern about sales later in the year. Inventory levels are
primarily on target, although a few contacts indicate they are a little
higher than expected because of soft sales. Capital spending is mixed,
with some retailers spending on new store openings, remodels, and IT
systems, and others remaining cautious on spending. Headcounts are
stable. Vendor and selling prices are said to be constant, although one
contact notes an increase in food-related commodity prices.

Manufacturing and Related Services

Most contacted manufacturing firms suggest that a relatively strong
first-quarter rebound in demand is continuing into the current quarter.
Results are particularly good at relatively non-cyclical
biopharmaceutical firms as well as highly cyclical firms such as
semi-conductor manufacturers. Growth in demand at these firms was
primarily in the double digits, with a few semi-conductor equipment
suppliers reporting Q1 quarterly growth in the high double digits. These
manufacturers had particularly bad years in 2009, but see continued
strong demand through the current quarter and year. By contrast,
revenues remain weak at business services firms as well as for a
recreational equipment maker. These companies describe their sales
environment as soft, with one noting that demand stagnated in the first
quarter rather than picking up as anticipated. Nonetheless, each of
these firms has seen at least small pockets of improving activity.

Input costs remain relatively stable at most of the firms
contacted, although costs have edged up a bit at firms whose production
processes are highly energy intensive. In addition, a plastics
manufacturer notes that some of its inputs are in short supply because
suppliers ratcheted back capacity during the downturn and are reluctant
to bring it back online. Selling prices are generally unchanged, as the
marketplace remains highly competitive. However, one firm recently
removed discounts it instituted in 2009, and a couple of others reported
being able to implement modest planned price increases.

Employment is mostly stable among contacted manufacturers, although
headcounts remain well below their 2008 levels at a number of firms. A
few firms have hired a small number of workers so far this year and they
plan to increase headcount slightly as the year progresses. The
strongest potential employment gains are in the biopharmaceutical
industry where one firm plans to increase its headcount during 2010 by
about 10 percent. Responding firms that froze salaries last year have
generally reinstated merit-based increases or plan to do so by the
middle of the year. Most manufacturers continue to report that their
planned capital expenditures for 2010 are in line or slightly greater
than their expenditures in 2009. Much of the planned capital spending
for this year is for infrastructure-related improvements. Overall,
manufacturers again indicate that they are cautiously optimistic about
the outlook for their business and the economy for the remainder of
2010. Some express concern about the potential impact of the current
situation in Europe on consumer demand, although most say their exposure
to European markets is relatively limited. Some biopharmaceutical
companies expect health care reform to hurt their bottom lines; one
company says the result will be less money for research and development.

Software and Information Technology Services

Software and information technology contacts in the First District
report improved business conditions, with demand up significantly
relative to a year ago. Increased activity is leading firms that
previously reduced headcount to hire selectively, and merit increases
have been reinstated. Respondents note that many large corporate
customers are raising their technology spending budgets, but some small
and mid-size businesses may still not possess the credit capacity to do
so. While some discounting pressure still exists, contacts report they
have been able to maintain prices. For those software and IT firms with
substantial shares of their business located internationally, the
European debt crisis is a major concern and the strengthening dollar
continues to negatively affect revenues. Despite these concerns,
respondents expect continued growth through the remainder of the year.

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

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