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

TENTH DISTRICT – KANSAS CITY

The Tenth District economy generally held steady in June and early
July, despite weak real estate conditions. Consumer spending remained
higher than year-ago levels and was expected to rise over the next three
months. Manufacturing activity expanded slightly, but at a slower pace
than in previous months. Transportation and high-tech firms reported
increased activity. As expected, residential real estate activity
contracted sharply in response to the expiration of tax credits.
Commercial real estate conditions weakened, and activity was expected to
slow in the months ahead. Bankers reported slightly increased loan
demand and did not anticipate a change in loan quality over the next six
months. Energy production expanded, raising expectations of increased
employment and capital spending over the coming months. Agriculture
conditions remained positive, and farmland values stayed above year-ago
levels. Wage and retail price pressures remained subdued.

Consumer Spending.

Consumer spending remained higher than a year ago, and contacts
anticipated gains over the next three months. District retailers
reported that sales in June and July were flat relative to the previous
survey period but remained above year-ago levels. Retailers expected
sales to rise over the next three months and a continued downward trend
in prices. Auto sales increased in response to higher discounts, and
dealers expected strong demand to persist in the coming months. Auto
dealers reported continued declines in inventories. Restaurant sales
were flat compared to the previous survey, but the average check amount
fell. Tourism activity rose over the past month and was expected to
remain strong during the summer months. Hotel occupancy rates increased
more than anticipated, but contacts expected to give up some of these
gains in the coming months.

Manufacturing and Other Business Activity.

Growth in manufacturing activity eased slightly in June, while
transportation and high-tech firms reported solid growth in sales and
activity. Production at manufacturing firms continued to rise, but the
pace of growth slowed for the second consecutive month. The volume of
new orders, shipments, and finished goods inventories were flat compared
to May, but the backlog of orders at manufacturing firms declined.
Manufacturing activity continued to improve compared to a year ago, and
firms remained optimistic about production and employment over the next
six months. Capital spending continued to decrease compared to year-ago
levels, and firms expected slightly less investment over the next six
months. Transportation firms saw an increase in activity when compared
to both the previous period and a year ago. Some firms continued to have
difficulty finding qualified drivers. Most transportation firms planned
to increase their capital spending the next six to twelve months. The
high-tech industry reported an increase in activity over the previous
survey period and expected strong growth during the next three months.

Real Estate and Construction.

Residential and commercial real estate activity declined since the
last survey period. With the expiration of tax credits, residential
sales dropped sharply resulting in higher inventories of unsold homes.
Residential real estate contacts continued to report that lower-priced
homes sold better than higher-priced homes. Over the next three months,
real estate agents anticipated slower sales. However, builders reported
higher traffic from potential buyers and expected starts to rise
slightly the next three months. Despite flat construction supply sales
since the previous survey, construction supply contacts also expected
sales to increase during the coming months. Refinancing activity
increased amid declining interest rates. Commercial real estate contacts
reported that conditions weakened after improving slightly in the
previous survey, including higher vacancy rates and declining sales,
construction, prices and rents. Commercial real estate conditions were
expected to worsen over the next three months. Developers reported
increasing difficulty accessing credit.

Banking.

Bankers reported slightly increased loan demand, stable deposits,
and an unchanged outlook for loan quality. Overall, loan demand edged up
after holding steady in the previous survey. Demand for consumer
installment loans increased. However, demand fell for commercial real
estate loans and was little changed for commercial and industrial loans
and residential real estate loans. Credit standards on residential real
estate loans and consumer installment loans were unchanged, but a few
banks tightened standards on their commercial and industrial loans and
commercial real estate loans. About the same number of bankers reported
an improvement in loan quality, compared to one year ago, as reported a
deterioration. Also, for the second straight survey, respondents
expected no change in loan quality over the next six months. Deposits
were unchanged, consistent with their overall stability since late last
year.

Energy.

Energy production continued to expand, and firms expected activity
to grow further in the coming months. Growth in the number of active
drilling rigs slowed relative to strong gains earlier in the year. Crude
oil prices were expected to remain unchanged due to a steadying of
supply and demand conditions. Firms reported that they planned to
increase the workforce the next three months, but some contacts noted
difficulty finding qualified workers. However, they did not anticipate
having to raise wages in order to attract workers. Capital spending was
expected to increase over the next six to twelve months, and several
firms mentioned the potential of developing the Niobrara oil shale in
northeastern Colorado and eastern Wyoming.

Agriculture.

Agricultural conditions remained positive since the last survey
period. Ample moisture reduced the need for irrigation, and the corn and
soybean crops were reported in generally good or better condition. Wet
weather, however, delayed the winter wheat harvest. While many areas
expected an abundant wheat crop, there were some reports of hail damage
and poor quality yields, especially in Oklahoma. Corn and soybean prices
held steady while wheat prices rallied slightly, mainly due to
expectations of a smaller global wheat harvest. Livestock operations
continued to be profitable with recovering demand for beef and pork.
Farmland values remained above year-ago levels. Farm loan demand held
steady, and ample funds were available at low interest rates for
qualified borrowers.

Wages and Prices.

Wage and retail price pressures remained low in June and July.
District firms reported a slight uptick in the shortage of qualified
labor, but wage pressures stayed at low levels. Retail prices continued
to decline compared to both the last survey period and a year ago.
Builders and construction supply firms expected prices to remain at
current levels over the next three months. Raw material prices at
District manufacturers grew during the survey period, but the pace of
growth slowed considerably. Meanwhile, transportation companies
continued to experience higher input prices. Overall, District contacts
planned to keep prices at their current level the next three months.

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

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