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


The economy in the Fourth District showed further signs of
strengthening during the past eight weeks. Manufacturers reported that
the rise in production which began late last year continued, although
orders remain below pre-recession levels. Contacts in non-residential
construction noted some signs of renewed growth, while residential
builders cited only a modest uptick in activity. Sales figures from auto
dealers showed a moderate improvement, whereas District retailers saw
their rate of sales growth slow. Energy production was mixed, and
reports indicate a better-than-expected rise in freight transport
volume. Demand by businesses and consumers for new loans remains weak,
while some bankers commented that the lending environment is starting to
grow more competitive.

There was a broad-based pickup in employment in the manufacturing
sector, where businesses are recalling workers and increasing production
hours. Staffing-firm representatives had mixed reports on the number of
new job openings, with opportunities concentrated in the healthcare
field. Wage pressures continue to be contained. Apart from rising prices
for steel and lumber, raw materials and product pricing was generally


Reports from District factories generally show that production
levels continued to increase during the past eight weeks and on a
year-over-year basis, though by varying amounts. Some respondents
attributed recent increases to seasonal factors. Most manufacturers are
confident about near-term prospects and expect their sales to remain on
a moderate upward trend. However, they do not expect a strong rebound to
pre-recession levels this year, and a few anticipate a leveling off in
new orders. Steel shipments remain on the upswing, with half of our
contacts characterizing volume as better than expected. Rising volume is
being driven by autos, energy, and construction equipment. Although some
underlying uncertainty remains, there is a sense that the current level
of business activity is sustainable, at least through the third quarter.
District auto production was stable in April on a month-overmonth basis,
while year-over-year it rose substantially for both domestic and foreign

A large majority of our contacts told us that their inventories are
now well balanced, reflecting increased demand. Capacity utilization
rates continue to improve, with a few reports indicating that it is now
moving toward historical norms. Capital outlays remain at relatively low
levels, and business owners are approaching spending decisions with
caution. However, the number of respondents who plan on additional
spending during the second half of 2010 has increased substantially
since our last report. Several steel producers and service center
representatives reported that they are beginning to see signs of a
leveling off in steel prices. Nonetheless, a few manufacturers are
contemplating, or have already put in place, higher product prices that
reflect the rise in the cost of steel. Even though new hiring is
limited, we heard numerous reports of recalling laid-off workers and
increasing work hours. Wage pressures are contained.

Real Estate.

In general, new home sales improved slightly during the past eight
weeks and on a year-over-year basis. Our contacts tell us that the
move-up and third-time home-buyer categories are gaining momentum, while
activity by entry-level buyers is lessening. Homebuilders are not
expecting a turnaround in the housing market this year, and they are
concerned about the effect of foreclosures and real estate owned
properties on housing inventories. Builders also reported that their
current spec inventory is in line with market demand. Little change was
noted in the list prices of new homes, and reports indicate an overall
rise in construction material costs, especially for lumber. Skeleton
crews remain the norm for general contractors and subcontractors.

Activity in non-residential construction continues to show signs of
a pickup. Inquiries have improved, and many contractors said that their
backlogs are higher than year-ago levels. Most projects currently
under-way fall within the industrial and government-funded
infrastructure categories. The glut in retail space shows no signs of
diminishing. Almost all of our contacts are fairly optimistic in their
outlook for the remainder of the year. Increased costs for construction
materials were limited to steel and lumber. General contractors reported
a small amount of seasonal and permanent hiring. While opportunities for
subcontractors are beginning to improve, many of them are still
struggling and taking on projects at cost.

Consumer Spending.

In general, retail sales were stable or down slightly during April
on a month-over-month basis and showed some improvement from year-ago
levels. Although consumers continue to focus on buying necessities,
retailers noted that they see a pickup in purchases of discretionary
items, especially for those used in the home. Looking forward, retailers
are cautiously optimistic, and most expect sales to show a slight
improvement going into the third quarter. Vendor and store pricing has
been relatively stable. Auto dealers saw new vehicle sales increase from
mid-April through mid-May, when compared with the previous 30- day
period, and on a year-over-year basis. Reported increases varied widely.
Used vehicle purchases were characterized as doing well. Overall,
dealers are cautiously optimistic and expect slow, steady sales growth
through the summer months. Reports on vehicle inventories were mixed.
Half of our contacts said they need more cars on their lots, while
others noted that inventories are in line with sales. Contacts also said
that buyers are finding it easier to obtain financing from banks, credit
unions, and captive financing companies. Reports show little change in
staffing levels at retailers or auto dealers.


The market for business lending remains soft, with most bankers
reporting that demand for new loans is steady to down slightly. Interest
rates were stable, although a few of our respondents noted that
competition is putting downward pressure on their rates. On the consumer
side, most bankers characterized loan demand as weak or flat. Those
seeing a slight increase attributed it to draw downs on home equity
lines of credit. The residential mortgage market continues at a slow
pace, with several bankers noting that activity has diminished further
since the end of the home-buyer tax credit. Core deposits continued to
grow at most banks, while deposit rates remain low or fell further.
Reports on the credit quality of loan applicants were mixed.
Delinquencies were improving almost across the board, with the only
problem areas continuing to be those related to real estate. Bankers
expect that current credit standards will persist for the foreseeable
future. Overall employment levels are stable, although two large banks
reported some workforce growth.


Reports show little change in oil and natural gas production during
the past eight weeks, with only a modest increase expected going into
the summer. Spot prices for oil and gas are trending down. We heard
mixed reports on coal output. One producer attributed very strong demand
for metallurgical coal to the global upswing in steel production, while
longterm expectations by electric utilities for flat demand and excess
capacity is putting downward pressure on coal output. Prices for coal
were mixed. In general, capital expenditures by energy producers are
flat to down. However, two of our contacts said that they expect to
increase capital outlays during the second half of 2010. With the
exception of steel pipe, production equipment and materials costs were
flat. Employment was steady, and little hiring is expected in the near
future. Wage pressures are contained.


Freight transport executives reported favorable volume trends, with
corresponding gains in their bottom lines. However, profits remain below
historical norms. Several contacts noted that the increased volume was
above expectations. Most freight executives characterized their outlook
as optimistic. Nonetheless, there remains some underlying concern about
the sustainability of the recovery and credit availability for working
capital. Several of our contacts noted that they are attempting to
negotiate moderate rate increases, with some degree of success. They
also reported a significant rise in the cost of packaging materials and
much higher quotes for tractors and trailers to be delivered in the
summer, which they attributed to new engine regulations. Major capital
purchases remain at low levels. However, due to aging fleets and growing
demand, the need to replace equipment may grow toward year-end. Current
hiring is for replacement only. If volume continues to build, freight
executives expect to add capacity in the near term.

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

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