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

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy expanded at a moderate pace over the
past six weeks, although business outlooks were slightly more cautious.
Respondents in most sectors said activity improved or held steady since
the last report. The notable exception came from homebuilders and
construction-related manufactures who said demand dropped off following
the expiration of the first-time homebuyer tax credit. The majority of
Eleventh District respondents expect economic conditions to remain
positive, but many expressed uncertainty about the pace of future
growth. Numerous contacts said uncertainty regarding fiscal and
financial reforms was restraining business activity.

Prices

Selling prices held steady for most responding firms. There were
scattered reports that rising input costs were squeezing margins.
Notably, paper producers said linerboard prices continued to rise, and
high-tech firms said supply-chain problems had increased costs for
producers. Some transportation service firms had raised fees but reduced
fuel surcharges. Lumber producers said prices had come down since the
spring run-up, and staffing firms continued to note pressure to reduce
fees. Contacts in residential construction said industry consolidation
has led to fewer concessions in pricing.

Crude oil prices traded in a range of about $70 to $75 per barrel
from late May through early July, down from the previous report.
On-highway prices of both gasoline and diesel fell about 5 percent
during the reporting period. Natural gas prices mostly ranged between
$4.50 and $5.00 per Mcf-moving up briefly over $5.00 per Mcf in June.
The increase in petrochemical prices seen earlier in the year due to
capacity outages has reversed course.

Labor Market

The majority of respondents noted steady employment levels,
although there were scattered reports of hiring activity. Staffing firms
said demand continued to increase for their services, and some contacts
in residential construction, construction-related manufacturing,
aircraft manufacturing and auto sales had added workers. On a less
positive note, contacts in the energy industry said the moratorium on
deepwater drilling resulted in significant regional layoffs, although
energy service companies were shifting Gulf Coast workers to land or
shallow water projects when possible. Wage pressures were mostly
nonexistent, with the exception of the airline industry. Although the
overall labor market remains slack one transportation service provider
was offering signing bonuses to truck operators, and a few firms noted
difficulty finding skilled workers.

Manufacturing

Most construction-related manufacturers reported a slowdown in
activity, and outlooks were less optimistic than in the previous report.
Producers that sell to the homebuilding industry said orders dropped off
more than expected following the expiration of the first-time homebuyer
tax credit. Contacts also reported declines in private nonresidential
construction. Fabricated metals producers said sales growth flattened
since the last report, while primary metals firms said activity picked
up slightly, but was bouncing along the bottom.

Production and new orders for high-tech manufacturing continue to
grow at a strong pace. Capital expenditures that were postponed during
the recession are driving purchasing, according to respondents.
Inventories were in good shape, having built up from extremely low
levels early in the year. Respondents expect demand to continue to grow
at a strong pace for the next three to six months, but there is
increased uncertainty about the outlook for 2011.

Manufacturers of aircraft and parts said sales had improved, with
orders coming mostly from the commercial and general aviation
industries. Budget cutbacks have curbed governmental and military sales.
An aircraft repair contact said growth in demand had softened slightly,
and the backlog of orders had dropped. Orders for emergency vehicles
remained flat and backlogs edged down, but not as much as contacts had
expected given budget strains among municipalities.

Reports on demand for paper products were mixed, but most contacts
said sales are about even with or slightly higher than a year ago. Food
producers noted increased demand, and outlooks were positive.

Producers of petrochemicals used in housing and commercial
construction (PVC) said orders fell since the last report, and
expectations are for no near-term improvement. Other than PVC, there
were no signs of weakness in chemicals. Demand was strong for
petrochemicals used in manufacturing, pulp and paper and alumina. In
addition, contacts said domestic demand for ethylene/polyethylene
products remained solid, and that export demand has returned slowly as
capacity was restored and prices declined. Refiners said gasoline demand
was steady in recent weeks while diesel demand has improved. Refinery
utilization rates improved to near 90 percent, as refiner margins remain
relatively strong.
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** Market News International Washington Bureau: 202-371-2121 **

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