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

Business conditions in the Third District have been mixed since the
last Beige Book. Manufacturers, on balance, reported slight decreases in
shipments and new orders in August. Retailers posted seasonal increases
in sales as well as year-over-year gains. Motor vehicle dealers also
generally posted year-over-year gains but indicated that sales have been
only steady in recent weeks. Third District banks reported steady loan
volume outstanding in the past few weeks. Residential real estate agents
and homebuilders said that there has been no rebound from the sharp drop
in home sales that followed the expiration of the federal tax credit for
purchases.

Contacts in the commercial real estate sector said there has been
practically no change since the last Beige Book in the generally weak
market conditions around the District. Service-sector firms reported
mostly flat or very slight increases in activity since mid-summer.
Business firms in the region indicated that prices of most goods and
services have been steady, although there continued to be reports of
increased prices for some metals and wood products. Several retailers
said they were receiving indications from suppliers that wholesale
prices will be increased toward the end of the year.

The outlook among Third District business contacts is positive but
not strong. Manufacturers forecast a rise in shipments and orders during
the next six months. Retailers expect sales to expand slightly but see
no signs that the pace of growth will quicken. Bankers expect little or
no growth in lending in the near term. Contacts in both residential and
commercial real estate expect flat activity during the rest of the year.
Service-sector companies expect slow growth for the rest of the year.

Manufacturing

Third District manufacturers reported slight decreases in shipments
and new orders from July to August, on balance, as well as a decrease in
order backlogs. Slower activity was reported in most of the major
manufacturing sectors in the District. However, producers of wood
products, food products, industrial materials, and measuring and testing
equipment reported increased demand for their products.

Third District manufacturers expect business conditions to improve
during the next six months, on balance. Among the firms surveyed in
August, about 40 percent expect increases in new orders and shipments,
and about 20 percent expect decreases. Capital spending plans among area
manufacturers remain positive, overall, but are not strong. About
one-third of the firms polled in August plan to increase expenditures
for new plant and equipment, and about one-fifth expect to reduce
spending. Several manufacturing executives indicated that uncertainties
about economic conditions and policies were deterring advances in
business activity. One noted that, ‘There is no sign of sustainable
improvement in demand, so we remain cautious about inventories, capital
spending, and hiring.’ Another said, ‘Investment spending is not
increasing because of concern about tax increases on business owners.’

Retail

Third District retailers reported that sales rose from July to
August for the back-to-school shopping period, and most of the stores
surveyed posted year-over-year gains for the period. Store executives
continued to note that much of the year-over-year improvement in sales
has been a consequence of last year’s poor results; nevertheless, many
said the fundamental trend in sales was beginning to strengthen. Some
merchants noted relatively healthy sales of apparel and small
appliances, albeit with significant discounting, but weak sales of
big-ticket consumer electronic products. Most store executives described
inventories as being in line with current and expected sales. Looking
ahead, most of the retailers contacted for this report said they
expected modest growth in sales through the end of the year. The
consensus was reflected in the comment of one store executive, ‘We are
in a recovery, but it will not get stronger until employment increases.’

Third District auto dealers reported roughly steady sales during
July and August at a rate somewhat above the year-ago pace. Dealers
expect sales to continue to run at about the current rate for the rest
of the year. However, some dealers said manufacturers’ incentives are
supporting sales of current model-year vehicles, and sales could slip
when that supply is depleted and replaced by new model-year vehicles.

Tourism officials and industry executives in the region generally
reported increased activity compared with last year, although most noted
that overall business remained below the levels of 2007 and 2008.
Contacts indicated that travel and tourism revenue was only modestly
above the year-ago level as lower spending per person partially offset
increased numbers of people visiting the region’s tourist attractions.

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

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