WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Sixth District, published
Wednesday:

Summary. Reports from Sixth District business contacts indicated
that economic activity continued to expand at a moderate pace in April
and May. Reports were somewhat more positive than the previous report,
and expectations remained generally optimistic across most sectors.
However, uncertainties surrounding the potential impact of developments
in Europe weighed on the outlook. Most retailers noted a modest increase
in sales activity, and auto sales remained strong. Positive reports from
the hospitality sector included healthy occupancy and room rates, and
future bookings were solid. Brokers and homebuilders noted higher sales
compared with last year, and commercial real estate contacts stated they
were seeing improvements led by gains in the apartment segment.
Manufacturers cited modest growth in new orders and production. Bankers
asserted that the demand for refinancing mortgages continued to increase
slowly. Hiring activity was positive, but muted. Firms continued to note
difficulty filling specialized positions. Most businesses indicated
having little pricing power; however, an increasing number of firms said
that they have been able to successfully pass on price increases,
especially those tied to energy costs.

Consumer Spending and Tourism. Reports from District retailers
indicated that consumer spending improved in April and May. Merchants
anticipate that sales will continue to grow at a modest pace in the near
term. The auto sector remained strong, and regional dealers expect sales
to remain solid going forward. Despite the recent slide in gasoline
prices, merchants remained wary of the potential impact on personal
spending. That said, few retailers reported significant changes in
consumer behavior with the exception of those operating in rural areas.

Leisure and business travel contacts continued to report robust
activity and a solid outlook for the remainder of 2012. Occupancy and
room rates exceeded expectations and convention bookings remained
strong. Reports also showed that a number of hospitality-related capital
investment projects were underway in several areas across the District.
Florida continued to be bolstered by visitors from South America and
Canada. Cruise-line bookings were down slightly compared with the last
report. High fuels costs were identified as a downside risk to the
summer travel season, but hospitality contacts were somewhat less
concerned than they were earlier in the year. They were more concerned,
however, about a potential decline in visitors from Europe.

Real Estate and Construction. The majority of residential brokers
said that home sales exceeded year-ago levels in April and May with many
reporting that sales exceeded expectations. Strengthening sales, mostly
from cash buyers and investors, were noted by most Florida contacts.
Brokers observed that inventory levels across the District continued to
decline. The majority of contacts reported that home prices were flat to
slightly up on a year-over-year basis. The sales outlook among brokers
remained positive with most anticipating year-over-year gains, albeit
from very low levels of overall activity, over the next several months.

District homebuilders reported that new home sales and construction
rose modestly compared with a year earlier. Builders indicated that home
price declines continued to abate. The majority indicated that new home
inventories declined further on a year-over-year basis. Contacts noted
that multifamily construction remained robust and new projects continued
to be announced. In the shortterm, homebuilders expect sales and
construction to be flat to slightly up compared with a year earlier.
Improvements in the Districts commercial real estate markets were led
by gains in occupancy and solid rental growth in the apartment sector.
Overall, small improvements were noted in the regions office and
industrial sectors as vacancy rates moderated somewhat; however, reports
on District retail real estate were more mixed. Although flat on a
year-over-year basis, the majority of commercial contractors said that
year-to-date construction activity was slightly ahead of activity in
last years fourth quarter. Backlogs were down from a year earlier. Most
contacts anticipate a modest increase in private construction activity
through the remainder of the year, while public works projects are
expected to decelerate.

Manufacturing and Transportation. The Districts manufacturing
sector continued to expand modestly in April and May. Manufacturers
reported growth in new orders and production, but noted that employment
growth had slowed somewhat. A District auto manufacturer announced plans
to add a third shift to meet increased global demand for their products.
Auto producers continued to note concern about economic and financial
conditions in Europe, a significant market for the regions auto
exports. Railroad contacts noted continued volume growth in shipments of
automobiles, metals, and forest products, along with strong intermodal
demand. Shipments of coal, construction-related aggregates, and
chemicals continued to moderate, however. Reports indicated that
elevated diesel prices were allowing railroads to maintain a competitive
edge over trucking. At District ports, imports of construction-related
steel was reportedly strengthening.

Banking and Finance. Lending standards remained largely unchanged
since the last report, but banking contacts indicated that more
applicants were qualifying for loans. Most District bankers commented
that demand for refinancing mortgage loans continued to increase; more
applicants had ample cash for down payments or enough equity in their
homes to meet the loan requirements. Credit availability increased and
competition among lenders for loans remained strong. Some bankers
mentioned improvements in the general creditworthiness of borrowers and
appraisal valuations.

Employment and Prices. Regional employment growth remained
positive, although contacts noted that uncertainty regarding future
economic conditions was a major headwind for additional job creation.
Employers continued to express difficulty hiring for specialized
positions, such as those in information technology and engineering.
Trucking contacts also noted continuing trouble finding qualified labor
to meet new federal regulations and some manufacturers cited
difficulties finding trained operators and welders. Skilled auto
mechanics also appeared to be in short supply. Firms noted the
importance of efforts by government and academic institutions to
coordinate training programs with large employers. Contacts also
indicated that private training programs funded by trade associations or
industry groups were being developed to train workers where larger
public programs were not available.

Though most contacts continued to indicate having little pricing
power, more firms recounted successful attempts or plans to pass on
price increases since the last report. Increased transportation costs,
including those resulting from higher gasoline and other fuel prices
were being passed on to consumers without much difficulty. Firms
responding in May to the Atlanta Fed’s Business Inflation Expectations
survey reported that unit costs were expected to rise 1.8 percent for
the year ahead, down from an average of 2.0 percent over the previous
three month period. According to businesses surveyed, materials costs
had subsided somewhat since April, though they are still expected to
have a moderate upward influence on prices over the coming year. Despite
continuing reports that sales levels are below what they consider to be
normal, contacts anticipate little to moderate upward price pressure
from improving sales levels over the next 12 months.

Natural Resources and Agriculture. Contacts noted that more
investment is needed in transportation infrastructure to accommodate
recent increases in domestic and Canadian energy production. District
refining contacts indicated that the capacity to process heavier grades
of crude are limited and despite investment in additional refinery
capacity, a number of recent and planned refinery closures elsewhere in
the country could imply that existing facilities may have difficulty
meeting demand for distillate fuels, like diesel and jet fuel. Permits
for offshore drilling have increased in recent months. Drought
conditions worsened in most of Florida and Georgia and parts of Alabama.
Prices paid to farmers for oranges were up and a contact reported these
higher prices were dampening demand. Prices paid for soybeans were up on
a year-over-year and month-over-month basis because of strong global
demand and decreased supplies coming from South America.

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

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