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

Summary. Economic activity in the Seventh District continued to
improve in June and early July, but the rate of improvement slowed
further. Most contacts remained cautiously optimistic. However,
increased uncertainty about the path of the economic recovery negatively
affected business and consumer confidence and spending. Growth in
manufacturing production eased and orders softened. Construction
decreased apart from public infrastructure. Consumer and business
spending increased at a slower rate. Credit conditions were slightly
improved, and price and wage pressures were small on balance. Crop
conditions deteriorated modestly.

Consumer spending. Consumer spending increased at a slower rate in
June and early July. Retail sales excluding autos edged up. While
spending on food and other necessities rose, spending on home-related
and luxury items decreased. Retailers reported maintaining relatively
low inventories amid dampened optimism for the back-to-school shopping
season. The pace of tourism activity also slowed with hotel occupancy
increasing at a reduced rate. Auto sales were lower in June, but auto
dealers reported showroom traffic picked up in early July in part
supported by increased incentives. In addition, several dealers
indicated inventories were lower than desired.

Business spending. The rise in business spending moderated further
in June and early July. Inventory investment continued to slow in
manufacturing, and contacts in retail trade indicated a slower rate of
inventory investment for higher priced goods. However, capital spending
on equipment and information technology continued to steadily grow.
Labor market conditions continued to gradually improve, although the
pace of hiring decreased. Contacts noted more caution in hiring
primarily due to an increasingly uncertain outlook for the second half
of 2010. For example, while temporary hiring continued to increase, it
did so at a slower rate. In contrast, a large staffing firm noted
billable hours from the industrial sector remained strong and had
accelerated for the information technology sector. Moreover, employment
and hours worked continued to expand in manufacturing.

Construction/real estate. Construction activity decreased from the
previous reporting period. Residential building was minimal as builders
were not introducing new inventory without a signed contract on a home.
Sales decreased after the end of the homebuyer tax credit, but showroom
traffic and contracts were up slightly in recent weeks. New mortgage
applications were down, but the decline was partly offset by an increase
in refinance activity as mortgage rates moved lower. Elevated vacancy
rates and downward pressure on commercial rents continued to restrain
private nonresidential construction. In contrast, public construction
increased at a faster rate as infrastructure construction picked up.

Manufacturing. Growth in manufacturing production slowed from the
previous reporting period. Orders softened over the course of June and
into early July as inventory replenishment decreased. However, contacts
remained cautiously optimistic, stressing the seasonal nature of the
slowdown. Steel production decreased, and capacity utilization edged
lower. A contact indicated that service centers were being cautious with
new orders despite the low level of inventories due to declining steel
prices and a more uncertain outlook for economic activity. Manufacturers
of industrial metals also noted a retraction in activity. Housing and
construction-related manufacturers continued to report weak business
conditions. Nonetheless, a contact in the household appliance industry
indicated that the need to rebuild inventories was likely to boost
production in coming months. In addition, automakers reported that sales
through the first half of July were above expectations, and automotive
suppliers continued to note strength in demand for their products.
Demand for heavy equipment also increased, both domestically and abroad.
Exporters, in general, cited positive business conditions, but several
contacts expressed concern about a potential slowdown in China and
European markets.

Banking/finance. Credit conditions were slightly improved in June
and early July. Credit spreads narrowed for a number of District firms,
and overall borrowing costs decreased. Business loan demand continued to
gradually increase, driven mostly by refinancing and acquisition
activity. Several banking contacts noted that fierce competition for
high quality borrowers was leading to greater flexibility in pricing and
terms on business loans. Consumer lending conditions were largely
unchanged. However, a contact noted that the gradual reemergence of
private mortgage insurance companies was beginning to improve the
availability of mortgage credit. In contrast, credit remained limited
for commercial real estate. Bank loan quality continued to improve
gradually, although a contact indicated that the pace of improvement had
slowed in recent weeks.

Prices/costs. Price and wage pressures, on balance, continued to be
small in June and early July. Contacts noted increases in the price of
energy, paper, plastics, and resins, while prices for industrial metals
like steel, aluminum, nickel, and zinc declined. Similar to the previous
reporting period, wage pressures increased only modestly. Pass-through
of cost pressures to downstream prices remained minimal, with pricing
power in most industries continuing to be weak.

Agriculture. Crop conditions varied across the District,
deteriorating modestly in June and early July. Excess precipitation in
some areas reduced hay output, damaged corn and soybean plants, and
forced replanting. However, contacts continued to expect good corn and
soybean yields this fall. In the recent period, smaller than expected
stocks of corn and soybeans led to crop price increases amidst concerns
about how much rationing will occur before the harvest. Hog and cattle
prices remained above year ago levels, although they declined during the
reporting period. In addition, milk prices increased, aiding the
struggling dairy sector. Problems with disease and the need for extra
fertilizer pushed up input costs, but crop farmers should be able to
cover their production costs for this year. The cost of refinancing debt
also put pressure on margins for many livestock operations.

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

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