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

Economic activity has moved up slightly in the Third District since
the last Beige Book, overall, although several sectors of the regional
economy remained soft. Manufacturers, on balance, reported an increase
in shipments but a slight decline in new orders in July. Retailers
posted year-over-year increases in sales of general merchandise for the
month, but motor vehicle dealers indicated that sales have decreased
since the spring. Third District banks reported steady loan volume
outstanding. Residential real estate agents and home builders said that
home sales decreased sharply with the expiration in April of the federal
tax credit for purchases and that sales have continued to be soft since
then. Contacts in the commercial real estate sector said vacancy rates
have been nearly level, but rents have been flat to down. Construction
contacts continued to report low levels of activity. Service-sector
companies generally reported just slight gains in activity. Business
firms in the region indicated that prices of most goods and services
have been steady, although there were increased reports of rising prices
for some metals and construction-related products. Firms also reported
increases in costs for employee health insurance.

The outlook among Third District business contacts is guardedly
positive, but the level of optimism has waned somewhat since the last
Beige Book. Manufacturers forecast a rise in shipments and orders during
the next six months, although the balance of positive over negative
views has declined since the previous report. Retailers expect sales to
expand slightly but believe consumer confidence remains fragile. Auto
dealers expect the sales rate to be steady in the months ahead,
retreating from their previous view that sales would increase. Bankers
expect slow growth in lending. Contacts in both residential and
commercial real estate expect mostly flat activity during the rest of
the year. Service-sector companies expect slow and uneven improvement.

Manufacturing

Third District manufacturers reported a modest increase in
shipments but a slight decline in new orders from June to July, on
balance. Order backlogs also fell, overall. Among the major
manufacturing industries in the region, producers of wood products,
chemicals, and basic materials reported increases in orders; but orders
were unchanged or declined in a majority of manufacturing sectors. In
general, manufacturers continued to describe the increase in demand for
their products as slow and uneven. One manufacturer said, “It has been
very choppy. We seem to be getting some traction, then orders dry up.”

Third District manufacturers expect business conditions to improve
during the next six months, on balance, although the margin of positive
opinions over negative opinions has declined since the previous Beige
Book. Among the firms surveyed in July, about 40 percent expect
increases in new orders and shipments, and 20 percent expect decreases.
Capital spending plans among area manufacturers remain positive, on
balance, but are not strong overall. About one-third of the firms polled
in July plan to increase expenditures for new plant and equipment, but
nearly one-half plan to maintain level spending, and nearly one-fourth
expect to reduce spending.

Retail

Third District retailers reported that sales in June increased
slightly compared with June of last year and that year-over-year growth
continued at around the same modest pace in July. Most retailers said
warm weather boosted sales of summer apparel, and some noted increases
in sales of jewelry, but many reported that sales of home goods,
especially big-ticket appliances, remained weak. Store executives
continued to caution that much of the year-over-year improvement in
sales was a consequence of last year’s poor results and that this easy
comparison will also affect the upcoming back-to-school and year-end
holiday period. Most retail contacts agreed with the evaluation of a
store official who said, “The consumer is still cautious and looking for
value.”

Third District auto dealers reported a drop in sales from May to
June, with continued slowness in July. Although dealers said there
continue to be shortages of popular models, they said overall demand for
cars and light trucks has not been as strong recently as it was earlier
in the year. Dealers have trimmed expectations since the last Beige
Book; they now anticipate little change in the sales rate during the
rest of the year.

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

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