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

Summary. Reports from Sixth District business contacts indicated
that the pace of economic activity slowed somewhat in June and early
July. Retailers reported a slight increase in traffic and sales, but
their outlook was less optimistic than the last report. Tourism reports
were generally positive, however, significant concerns were expressed
over the potential impact from the oil spill on the Gulf coast.
Residential real estate contacts suggested that the pace of new and
existing home sales slowed, and their outlook was pessimistic.
Commercial real estate remained weak. Manufacturers saw a slight
deceleration in activity as the pace of new orders and production growth
slowed. Banking credit conditions remained tight and loan demand was
subdued. Businesses continued to increase the hours worked of existing
staff and to expand their use of temporary hires. Permanent hires were
less apparent. Transportation and material costs rose slightly, but most
firms expressed no intention of passing these increases along to
consumers.

Consumer Spending and Tourism. Most District merchants noticed a
slight increase in traffic and sales in June and early July. Retailers
also mentioned that despite the uptick in sales, they continued to keep
inventory levels low. Although most merchants have reported improved
conditions since the beginning of the year, sales levels remained well
below pre-recession levels. The outlook among retailers was more subdued
than in previous months. Automotive dealers reported that sales improved
from a year ago.

Overall, tourism continued to show signs of improvement compared
with last year. Reports from Miami and New Orleans indicated that
business-related travel and convention bookings remained positive.
Leisure travel was positive in most District destinations except for the
Gulf coast where significant concerns were reported over the oil spill
and its impact on tourism. Hospitality contacts in the area remarked
that some cancelled bookings have been substituted by the presence of
clean-up crews, oil company workers, and the National Guard. Contacts
not located along the Gulf coast have stated that there have been
increased bookings as a result of deflected business from oil-affected
areas.

Real Estate and Construction. District residential real estate
brokers and homebuilders reported that home sales weakened notably in
June and early July on a year-over-year basis. Contacts also indicated
that sales fell on a month-over-month basis. However, several brokers
remarked that June sales were boosted by closings associated with the
housing stimulus. Buyer traffic continued to soften across the region.
Realtors noted that existing home inventories rose outside of Florida on
a year-over-year basis, while Florida inventories declined modestly.
Similar inventory trends were seen on a month-over-month basis. New home
inventories remained below the year-earlier level, and construction
activity softened from already weak levels. Both Realtors and builders
shared concerns about the housing market going forward; the outlook
weakened and sales growth over the next several months is anticipated to
be slightly negative.

Nonresidential construction activity continued to be weak. The
majority of contacts noted that the pace of commercial development was
below the year-earlier level and backlogs remained at low levels.
Vacancy rates were high across the District and contacts witnessed
downward pressure on rents. The outlook for the rest of the year
remained negative.

Manufacturing and Transportation. Almost half of District
manufacturers contacted stated that new orders and production grew at a
slower pace in June than in the previous report. The number of firms
experiencing higher levels of orders decreased notably compared with the
previous report, while the number of contacts planning to expand
production in the near future dropped as well. Freight activity remained
above weak year-earlier levels, led by increased shipments of motor
vehicles, metals, and chemicals.

Banking and Finance. Industry reports indicated that banking
conditions weakened across much of the District. Several bankers
reported that credit remained available to qualified customers.
Consumers seemed reluctant to take on additional debt, however. Contacts
also cited declining credit card use as consumers continued to
deleverage. Business loan demand was also muted.

Employment and Prices. Private payroll employment increased
slightly through early July across the District, although many
businesses maintained a strong preference for increasing existing staff
hours and using temporary staff rather than hiring full-time, permanent
employees. In addition, the outlook regarding labor market conditions
along the Gulf coast remained tempered by the impact from the oil spill.

Despite reports of raw materials and transportation cost increases,
most firms conveyed no plans to pass the increases on to consumers.
Several contacts remarked that excess production capacity and
competition continued to put downward pressure on prices in a variety of
sectors.

Natural Resources and Agriculture. Local energy prices and oil
production have remained mostly stable since the onset of the oil spill
in late April. Gulf of Mexico crude inventories continued to hover near
the top of their average range for this time of year. Nonetheless, a
number of businesses expressed concern about the potential impact on
long-term energy production and employment from the deepwater drilling
moratorium. Industry reports noted recertification of deep and shallow
water rigs/wells was underway. Meanwhile, contacts indicated that Gulf
ports were operating normally and commerce along the Mississippi River
remained uninterrupted.

Dry conditions and high daytime temperatures have resulted in some
crop stress in parts of the District, but conditions overall continued
to be good for cotton and citrus crops. Cotton plantings have increased
on a year-over-year basis.

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

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