WASHINGTON (MNI) – The following is the second and final part of
the text summarizing the latest Beige Book survey of economic conditions
in the twelve Federal Reserve districts:

Real Estate and Construction

Activity in residential real estate markets largely held steady at
very low levels, with the exception of further increases in the
construction of multifamily residences. The pace of single-family home
sales remained quite sluggish throughout the country, although the
Dallas District reported a modest increase over the prior reporting
period. Some Districts, such as Boston and Atlanta, noted that home
sales exceeded levels from twelve months earlier, but mainly because the
earlier levels reflected a substantial drop following the expiration of
the homebuyers tax credit in mid-2010. Prices were largely stable on a
short-term basis in most areas but in many instances were below their
levels from twelve months earlier. Extensive inventories of distressed
properties were reported to be a source of price restraint in the
Boston, Richmond, Chicago, and San Francisco Districts. Construction of
single-family homes remained at depressed levels in most areas and fell
further in some, such as the Philadelphia, St. Louis, Minneapolis, and
Kansas City Districts. However, Cleveland reported that activity
improved during the past couple of months. In contrast to the soft
market for single-family residences, the market for rental units
tightened in some areas such as the New York and Richmond Districts, and
construction of multifamily residences rose in the Boston, Philadelphia,
Chicago, Kansas City, and Dallas Districts.

Demand for nonresidential real estate remained somewhat soft
overall but improved in a number of Districts. Vacancy rates and other
indicators in markets for office space were largely unchanged in the
major metropolitan markets in the Boston, Philadelphia, Cleveland,
Richmond, and St. Louis Districts. By contrast, New York reported that
demand for office space “picked up in late 2011,” causing vacancy rates
to edge down and asking rents to rise. Minneapolis, Kansas City, Dallas,
San Francisco, Atlanta, and Chicago all reported stronger demand for
commercial real estate compared with earlier in 2011, and the latter two
Districts also noted a pickup in nonresidential construction activity.
Cleveland and Chicago reported that the strongest demand and most
extensive construction activity has been for industrial and health-care
facilities, while Minneapolis highlighted growing demand for industrial
space and San Francisco stressed growing demand emanating from the
information technology sector.

Banking and Finance

Lending activity edged up overall, primarily due to increased loan
demand by businesses. Most Districts that commented on lending activity
indicated little or no change in overall loan demand, but the remaining
Districts identified increases rather than decreases. New York reported
a pronounced increase in demand for commercial mortgages, and Cleveland
also noted increased demand in this category. Both Dallas and San
Francisco noted a slight uptick in commercial and industrial lending.
Consumer lending was largely flat compared with the prior reporting
period, although auto loans rose in Cleveland. New York, Philadelphia,
and Cleveland reported demand growth or continued strength for
refinancing of residential mortgages.

Lending standards were largely unchanged across all lending
categories. However, New York reported slight tightening for commercial
and industrial loans. Moreover, a few reports highlighted that small
businesses continued to struggle with credit access through banks. In
the Atlanta District, some small businesses have turned to nonbank
institutions for financing, and in the Chicago District some
manufacturers have been financing loans to their suppliers from retained
earnings. Credit quality improved in many Districts: New York reported a
decline in delinquency rates for all loan categories, while
Philadelphia, Richmond, Kansas City, Dallas, and San Francisco all
reported general improvement in loan quality.

Agriculture and Natural Resources

Demand for agricultural products was strong during the reporting
period, but growing conditions and input prices were mixed. Farm income
and profits were reported to be at very high levels by Chicago and
Kansas City, enabling many farmers to repay loans and expand their
operations, and San Francisco reported further sales growth for a
variety of agricultural products. Rising foreign demand was noted as a
source of strength for livestock sales in the Atlanta and Dallas
Districts and for dairy and meat products in the Chicago District.
Growing conditions were somewhat mixed across areas. Farmers and
livestock producers in the Atlanta and Dallas Districts have been
struggling with ongoing droughts, which have required costly responses
such as supplemental feeding of livestock. While timely rains eased
drought conditions somewhat in the Dallas and Kansas City Districts,
wheat farmers in the latter are hoping for more protective snow cover
for the winter crops dormancy period. In addition, high or rising
prices for some inputs were noted by Chicago and Kansas City, tempering
farmers profit expectations for the coming year.

Demand and extraction activity rose further for producers of
natural resource products. Energy extraction has been on the upswing.
Atlanta reported that companies have been expanding their workforces and
increasing their production capacity and exploration plans in the Gulf
of Mexico. Minneapolis and Kansas City reported that oil and gas
exploration and extraction activity were well above their levels from
twelve months earlier, and Dallas noted that a high level of activity is
expected to resume in early 2012 following a year-end seasonal lull.
Minneapolis and San Francisco reported expansion of mining capacity and
activity for a range of industrial and precious metals.

Prices and Wages

Upward price pressures and price increases were very limited during
the reporting period. Reports from various Districts, including Boston,
Atlanta, and Chicago, indicated that upward price pressures from rising
commodity and input prices have eased substantially, with Boston noting
that “even food prices have ceased rising.” Atlanta reported that firms
have limited pricing power in general, and San Francisco pointed to
intense supplier competition as a factor holding down prices. Similarly,
Kansas City reported a recent uptick in input prices but noted that few
manufacturers passed these increases on to the prices of their finished
goods.

Wage pressures remained modest overall. The combination of limited
permanent hiring in most sectors and numerous active job seekers has
continued to keep a lid on general wage increases. However, reports from
a few Districts highlighted significant supply constraints and in some
cases large compensation increases for workers with specialized skills
in selected sectors, including the energy sector in the Dallas District
and the technology sector in the San Francisco District. On a related
note, Minneapolis reported that employers have increased relocation pay
for employees willing to settle in parts of that District where worker
availability is limited. Increases in the costs of employee health
benefits continued to put significant upward pressure on overall
compensation costs, although some employers in the Philadelphia District
reported significant rollbacks from past increases.

(2 of 2)

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

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