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

The Twelfth District economy posted further modest improvement
during the reporting period of early April through the end of May.
Despite rising prices for some non-oil commodities, price increases for
final goods and services remained restrained, and upward wage pressures
were largely absent. Demand for retail items and services continued to
strengthen, but sales remain well below pre-recession levels.
Manufacturing activity in the District continued to firm, with
additional improvement noted in sectors such as wood products and metal
fabrication, which have been among those most troubled. Agricultural
producers reported solid sales, while demand was mixed for providers of
natural resource products. Demand for housing appeared to hold largely
steady, but conditions in commercial real estate weakened further.
Banking contacts reported stable to slightly increased lending activity.

Wages and Prices

Upward price pressures remained limited on net during the reporting
period. While the price of oil came down in recent weeks, the prices of
other selected commodities, such as steel, copper, and concrete, rose.
Additionally, contacts continued to report price increases for
transportation services. Given the weak overall level of demand,
however, the final prices for a wide variety of retail items and
services continued to be held down.

Upward wage pressures were largely absent, although reports
continued to point to notable increases in employee benefit costs.
Compensation gains remained constrained by high unemployment and limited
hiring throughout the District. Compared to the same period a year ago,
the majority of respondents expect wages to remain largely stable or
rise slightly in the second half of 2010, while they anticipate that
benefit costs, especially for health insurance, will increase more
significantly.

Retail Trade and Services

Retail sales remained somewhat lackluster on net but continued to
improve modestly. Both traditional department stores and discount chains
reported additional increases in sales, and although consumers remained
focused on necessities, contacts noted further increases in demand for
some nonessential items and higher-priced options. Sales remained strong
for grocers and continued to improve for sellers of furniture and
household appliances. Similarly, retailers of home remodeling supplies
and equipment saw robust levels of activity. Sales of new automobiles
improved a bit further during the reporting period, although contacts
cautioned that demand has slipped somewhat in recent weeks.

Demand for services showed further signs of improvement but
remained weak overall. Providers of health-care services reported
relatively steady levels of activity, while energy utilities reported
increased demand from households and from firms in selected industries,
such as technology and wood products. Similarly, restaurants and other
food-service firms noted continued modest increases in demand. Sales
remained sluggish for providers of professional and media services.
Conditions continued to improve in the tourism and leisure sector:
Contacts in many of the Districts major markets reported increases in
visitor volumes and hotel occupancy rates, and, notably, reports pointed
to positive developments in business travel and convention activity.

Manufacturing

District manufacturing activity picked up further on balance during
the reporting period of early April through the end of May. Conditions
continued to improve for manufacturers of semiconductors and other
information technology products, with balanced inventories and high
levels of capacity utilization noted. An extensive order backlog
generally held production rates at a steady pace for makers of
commercial aircraft and parts, although new orders continued to be
limited. Capacity utilization remained at very low levels for companies
in the metal fabrication and wood product sectors, but further modest
improvement in demand was reported. Food manufacturers witnessed
continued growth in new orders and sales with high levels of capacity
utilization.

Agriculture and Resource-related Industries

Demand stayed solid for agricultural producers but was mixed for
extractors of natural resources used for energy production. Sales held
largely steady for a variety of crop and livestock products, and reports
from agricultural contacts indicated little change in input costs. Oil
extraction activity decreased somewhat in recent weeks as the price of
oil declined. Meanwhile, despite high levels of inventory, extraction of
natural gas increased modestly as demand showed signs of firming.

Real Estate and Construction

Demand for housing in the District appeared to be little changed
from the previous period, while demand for commercial real estate
deteriorated a bit further. Home prices continued to edge up in some
parts of the District, and although the pace of home sales remained
mixed across areas, it appeared largely stable on net. However, contacts
continued to note that the limited availability of nonconforming “jumbo”
loans has restricted sales of higher-priced homes in some areas.
Scattered reports pointed to some modest improvements in residential
construction, most notably in the repair and remodel sector. Conditions
worsened somewhat further in commercial real estate markets, with
vacancy rates for office and industrial space edging up in many parts of
the District. However, contacts reported continued improvements in
leasing activity for some market segments of the District as tenants
seek to secure favorable terms.

Financial Institutions

Reports from District banking contacts indicated that loan demand
was largely stable or slightly up compared with previous reporting
periods. Businesses cautious attitudes towards capital spending
continued to restrain commercial and industrial loan volumes; however,
reports indicated a pickup in loan demand coming from selected
businesses that are planning to replace worn or outdated equipment and
software. Demand for consumer loans remained weak on net. Lending
standards continued to be relatively restrictive for consumer and
business lending, although reports suggested that credit quality may be
stabilizing. Going forward, continued modest improvement in commercial
and industrial loan demand seems likely; overall, respondents expect
capital spending in equipment and software to increase further in the
second half of 2010, although capital spending in structures is
anticipated to remain lackluster.

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

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]