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

SEVENTH DISTRICT – CHICAGO

Summary.

The pace of economic activity in the Seventh District moderated in
October and early November. While contacts generally were cautiously
optimistic about the economic outlook, many also expressed concern over
the increasingly risk adverse business environment. Consumer spending
increased, while business spending was steady. Manufacturing production
also increased, with growth leveling off over the reporting period.
Construction was again subdued, although nonresidential construction
increased slightly. Credit conditions were little changed. Wholesale
price increases slowed, but there was some further pass-through to the
retail level. Corn, soybean, and cattle prices were up from early
October, while milk and hog prices were down.

Consumer spending.

Consumer spending increased in October and early November.
Retailers reported moderate sales growth with consumers responding to an
increase in promotions during the reporting period. Contacts expected
retailers to use extended promotional periods and heavy discounting in
an effort to keep traffic volumes steady over the upcoming holiday
shopping season. Auto sales also increased in October, but the sales
pace slowed in early November. Dealers indicated that consumers may be
waiting to see what end-of-the year deals will be offered; they also
were concerned that recent stock market volatility would weigh on
consumer confidence and willingness to spend.

Business spending.

Business spending was steady in October and early November. Several
manufacturers said that they were reluctant to build inventories, as the
elevated uncertainty surrounding the European and Asian economies had
led them to take a “hand-to-mouth” attitude towards ordering. In
contrast, contacts generally reported moving ahead with planned
purchases of equipment and software. Most, however, indicated that
hiring plans remained limited. Labor market conditions deteriorated,
with some additional layoffs announced and unemployment in the District
edging higher. In addition, growth in billable hours continued to
moderate for staffing and professional services, although one staffing
firm noted that permanent placements were increasing offsetting some of
the decline in the demand for temporary workers.

Construction/real estate.

Construction activity was again subdued in October and early
November. Residential real estate conditions remained depressed.
Builders reported very little new single-family home construction, and
showroom traffic was steady at a low level. Multi-family construction
was stronger in comparison. Nonresidential construction increased
moderately. Contacts cited continued growth in the industrial sector and
an uptick in demand for medical and professional office space, while
retail construction remained very slow. Commercial real estate
conditions were little changed on balance with only a slight decline in
vacancy rates reported.

Manufacturing.

Growth in manufacturing production increased further in October
before leveling off in early November. Demand for heavy equipment
remained strong, led by robust activity in the energy sector. Contacts
expected the growth in demand for equipment to moderate going forward,
but also noted that the need to replace aging capital would continue to
boost demand into next year. Manufacturers of specialty industrial
metals also reported greater activity, driven in large part by the auto
sector and exports. Auto production in the District continued to
steadily improve, although the recent flooding in Thailand was reported
to have challenged supply chains and impeded the recovery of dealer
inventories of Japanese vehicles. Several contacts cited concerns that
going forward moderately higher production levels would begin to strain
capacity in the supply chain. In contrast, capacity utilization in the
steel industry decreased, and orders coming into service centers were
described as spotty. Furthermore, manufacturers of household appliances
and construction materials reported declining demand.

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

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