WASHINGTON (MNI) – The following is the first of two parts of the
Beige Book section on the Federal Reserve’s Eleventh District, published
Wednesday:

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy expanded at a modest pace over the
past six weeks. Activity in the energy sector strengthened, and
transportation services and staffing firms reported steady but solid
demand. Retailers said apparel sales were slow due to unseasonably warm
weather, while reports from the manufacturing sector were mixed.
Activity in the housing market remained sluggish but conditions improved
slightly in commercial real estate. Overall lending conditions were
largely unchanged. Most respondents expect slow growth in the near term.

Prices

Selling prices and fees held steady at most responding firms due to
competition and low sales activity, but there were some reports of
increases. Small parcel shipping prices rose slightly while large parcel
shipping prices increased sharply, according to contacts. Fabricated
metals producers noted selling prices edged up in response to higher
steel prices and primary metals manufacturers reported price increases
were becoming necessary to offset higher cost of aluminum and other
industrial metals. Agricultural respondents said crop prices increased
across the board, and staffing firms reported upward movement in billing
rates. Improved demand has enabled railroads to raise prices across
various business units.

The price of crude oil rose moderately on stronger demand from
China and a weaker dollar. On-highway prices of both diesel and gasoline
increased. Natural gas prices remained weak as mild weather, record-high
inventories and forecasts for a normal winter put downward pressure on
prices. Solid demand, tight supplies, and multiple plant outages led
ethylene producers to push through a 4 cent increase in contract prices
for October, and spot prices rose sharply in response.

Labor Market

Employment levels held steady at most responding firms, and there
were scattered reports of hiring. Staffing firms continued to report
strong hiring activity in the region, and noted that they were adding
workers in response. Some contacts in the airline, transportation
services, automobile sales and transportation manufacturing industries
added workers, and retailers were starting to ramp up hiring for the
holiday season. Layoffs remained limited. Wage pressures were minimal,
with the exception of reports of higher wages in the airline industry.

Manufacturing

Demand for construction-related products was flat over the past six
weeks, but a few manufacturers said sales rose due to an uptick in
multifamily housing activity. Contacts expect conditions to remain weak
or improve slightly in 2011 due to continued weakness in residential and
commercial real estate. Fabricated metals producers saw a sharp increase
in demand over the past month due to seasonal factors and
government-related project work.

Most high-tech manufacturers said growth in orders and production
continued at a much slower pace than in the first half of the year.
Sales of some consumer products such as personal computers and laptops
slowed, but demand for gaming products and smart phones remained strong.
Several respondents expressed concern about reduced demand from the
public sector as governments at all levels were faced with large revenue
shortfalls. Still, most respondents expected conditions to remain stable
for the next three months.

Demand for paper products held steady. Food manufactures said
growth in orders was stable over the reporting period, and the
three-month outlook for sales was positive. Trailer manufacturers
reported a slowdown in demand. Contacts in aircraft parts distribution
and manufacturing saw an increase in demand due to higher utilization of
aircraft fleets and deferred maintenance work.

Demand for petrochemicals was solid. Ethylene and polyethylene
producers reported that domestic demand increased moderately, and export
demand stayed strong-driven by cheap natural gas versus relatively
expensive oil and a weaker dollar. Domestic orders for PVC used in
residential and commercial construction remained depressed, but exports
were strong, according to contacts. Demand for petrochemicals used in
manufacturing, alumina, pulp and paper improved. Refiners said
conditions remained weak. Demand for oil products continued to decline
and refiner margins were being squeezed by the rise in oil prices.
Refinery utilization rates stood just above 80 percent, down from 90
percent this summer.

Retail

Eleventh District retail sales grew modestly, despite unseasonably
warm weather that impacted apparel sales for much of the reporting
period. In recent weeks, however, clothing retailers noted sales
improved as temperatures fell to more normal levels. Two large retailers
said that their sales in Texas outperformed those nationwide.
Inventories increased slightly due to the warm weather and some seasonal
buildup. The retail environment remains extremely competitive, and
contacts say they still have to lure consumers with promotions.
Expectations are for the holiday shopping season to yield moderate
year-over-year sales increases. Contacts expect continued improvement in
2011, although most expect the pace to be slow to moderate.

Automobile sales were slightly weaker over the reporting period, by
more than normal seasonality would suggest. Inventories rose, but remain
at healthy levels, according to contacts. A typical slowdown in sales is
expected heading into the holiday season, but the outlook for next year
is cautiously optimistic, with most contacts predicting modest growth in
sales.

-more-

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

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