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

Real Estate and Construction

Contacts in residential real estate markets reported increases in
sales of new and existing homes from March to April as well as
year-over-year gains for both months, but the sales pace slowed in May.
The March-April results were fueled by the federal income tax credit for
home purchases, according to contacts, and they expect the monthly sales
rate to taper off. They expect some sales momentum for existing homes as
recent homebuyers sell their current residences, but slower sales after
that. Many contacts believe “we stole sales from the future,” as one
real estate agent said. Although builders reduced inventories of built
homes in the past few months, they do not expect construction activity
to pick up this summer. For both new and existing homes, contacts
reported little change in prices compared with a year ago.

Nonresidential real estate firms indicated that vacancy rates in
commercial and industrial buildings have increased slightly in most
parts of the Third District in the past few months. Leasing activity has
picked up somewhat, but effective rents have been steady to down as
recently completed buildings have added to the supply of available
space. Construction activity has been generally flat at low levels,
according to contacts, although some reported increases in road building
and publicly funded projects. Contacts expect leasing activity to
increase slowly in the months ahead and rents to remain about steady.
“It will not be a robust recovery,” according to one contact whose
opinion reflected the consensus. Building contractors and commercial
real estate agents were in agreement that construction activity showed
no signs of increasing in the near term.


Service-sector firms generally reported that activity has expanded
slightly since the last Beige Book. Business services firms indicated
that client companies in most industry segments have increased use of
their services, with the exception of the construction industry, a
sector in which a recovery has not yet occurred. Several business
services firms reported increased interest in outsourced functions by
companies in a range of industries as well as by state and local
governments. Nearly all the services firms contacted for this report
noted that the recent improvement has been slight. One contact said,
“The growth is modest, and the year-over-year comparison is easy because
business was very slow last year.” Looking ahead, most of the services
firms contacted for this report expect continued modest growth for the
rest of the year.

Prices and Wages

Reports on input costs and output prices have been mixed since the
last Beige Book, although there has been an increase in the number of
reports of rising prices. Around 40 percent of the manufacturing firms
polled in May noted increases in the costs of the commodities they use,
and 50 percent reported steady input costs. Manufacturers continued to
report rising costs for metals and metal products, and they also
reported increased costs for lumber and chemicals. Most manufacturers
said they have not raised the prices of the products they make, although
some producers of lumber and wood products, metals, and electrical
equipment have raised prices. Construction firms noted increases in the
costs of lumber, drywall, oil-based products, and some metal products.
Retailers reported mostly flat selling prices. However, they noted
increases in the cost of cotton goods and international freight rates.
Auto dealers said vehicle selling prices have moved up, particularly for
used cars.

Business firms in the region reported a slight increase in hiring,
on balance, but no significant changes in wages since the last Beige
Book. Several firms noted that recent increases in business activity
have prompted them to consider increasing staffing levels sometime this
year. Employment agencies reported strengthening demand for temporary
workers and a slight increase in demand for permanent employees.

(2 of 2)

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