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

ELEVENTH DISTRICT-DALLAS

Summary

Economic activity in the Eleventh District firmed up further over
the past six weeks. Respondents in high-tech manufacturing, retail,
residential real estate, energy and staffing and transportation services
cited continued improvement in demand. Conditions in the commercial real
estate, financial services and construction-related manufacturing
sectors also showed signs of nearing bottom. Although respondents
continued to express caution in their outlooks, overall expectations
were slightly more optimistic than the last report.

Prices

Weak demand, excess capacity and competition continued to put
downward pressure on selling prices or fees across several industries,
and some contacts noted lowering prices to keep the business. There were
reports of an uptick in raw materials prices for steel, fuel, cotton and
sugar. Rising raw material costs are squeezing margins as many contacts
are unable to pass on these increases to clients.

Crude oil prices rose from $75 in mid-February to over $80 per
barrel in late March. On-highway prices for diesel and gasoline followed
suit, rising nearly 20 cents per gallon. Prices of chemicals and related
products also rose sharply largely due to plant outages. In contrast,
natural gas prices slipped from $5.50 per Mcf to near $4 during the
reporting period due to continued high levels of production, low
industrial demand and the end of the winter season.

Labor Market

Employment levels held steady at most respondent firms. Layoffs
have subsided but most firms are hesitant to hire new employees. On a
more positive note, staffing firms continued to cite increased hiring
activity, and there were reports from a few high-tech manufacturing,
paper and lumber industry respondents that temporary hiring had edged
up. A high-tech manufacturer noted opening a new plant, while a large
discount chain operator said they were opening new stores and expanding
headcount albeit at a much slower pace than before the recession.
Additionally, some energy service and transportation manufacturing firms
noted an uptick in hiring. Wage pressures were nonexistent, and a
handful of firms reported they planned on partially reinstating employer
matches to employee 401(k) plans or on giving small pay increases.

Manufacturing

Reports from construction-related manufacturers were mixed, but
overall they suggest that activity has bottomed out. Some firms noted
that favorable weather in March led to an uptick in orders, while others
reported continued weakness. Contacts say that while the “worst may be
over”, they expect a slow recovery in business. Fabricated metals
producers cited a sharp rise in orders, and reported a positive sales
outlook for the next three months.

Producers of trailers reported a large increase in orders over the
past month, and added that they were building up inventories to better
meet customers’ needs. Manufacturers of emergency vehicles said growth
in orders decelerated over the past six weeks as customers, particularly
municipalities, are experiencing a decline in tax revenues. An aircraft
components manufacturer reported an uptick in demand but said that
orders remained significantly below year-ago levels.

Paper manufacturing firms cited flat to rising demand. Respondents
say conditions have improved relative to last year, but the picture is
far from rosy and expectations are for a slow and gradual recovery. Food
producers said demand held steady over the past month, and noted a
positive sales outlook for the year.

Respondents in high-tech manufacturing reported that orders
continued to accelerate and the book-to-bill ratio was well above one.
Contacts say inventories have increased slightly but still remain below
desired levels. In an industry where prices typically fall, strong
demand has helped stabilize prices. Most respondents are cautiously
optimistic that demand will remain solid over the next three to six
months.

Petrochemical producers report that ethylene plant outages have led
to large increases in prices for ethylene and other related products
such as polyethylene and polyvinyl chloride, which has dampened export
demand for these products. Refinery margins remain very weak, and
capacity utilization rates are below 80 percent.

Retail

Retail sales rose further during the reporting period. Large
discount store chains noted an increase in demand especially for
electronics and household items, and department store sales were also
better than expected. Contacts say although consumers remain cautious,
they are regaining confidence and are more willing to spend. Outlooks
remain guarded but contacts expect continued improvement in sales
throughout the year.

Automobile sales rose over the past six weeks, which contacts
attributed to improving consumer confidence. Inventories remain lean.
Prices are flat but rebates recently introduced by Toyota, have led
other automotive manufacturers to follow suit.

Services

Staffing firms say orders are streaming in at a solid pace and are
well ahead of last year. Demand is still largely for contract work, but
direct hire placements are picking up pace. Sustained growth in orders
has boosted contacts’ assessments of current conditions as well as their
near-term outlook. Accounting firms note that demand outside of tax
related services remains sluggish. Demand for legal services held
relatively flat at low levels, with the exception of a slight uptick in
energy-related activity.

Reports from transportation service firms were generally positive.
Strong overseas demand pushed up intermodal cargo volumes over the past
month. Small parcel shipping firms said a pickup in demand from the
professional and business services, manufacturing and nondurable retail
sectors led to positive growth in volumes. Railroads reported a modest
but broad-based increase in shipments, and noted that the outlook is
more upbeat than last time. Airline demand appears to be slowly
improving, with leisure travel seeing continued growth and business
travel stabilizing. Contacts expect demand for air travel to be steady
this year.

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

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