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

Banking/finance.

Credit conditions were little changed on balance during the
reporting period. Volatility in equity markets remained elevated, and
some additional flight to quality further boosted the demand for
Treasury debt. Contacts noted the bankruptcy filing of MF Global
Holdings Ltd. was disruptive for the company’s former clients, with
missing funds and uncertainty about the status of their futures and
options positions limiting their ability to manage risk. Corporate
funding costs generally edged lower as spreads narrowed relative to low
benchmark interest rates. Banking contacts indicated that business loan
demand continued to be muted by clients’ reluctance to take on
growth-oriented projects due to economic and political uncertainty. In
addition, the lower liquidity in high yield and term loan markets did
not seem to be causing much substitution of leveraged financing from
bond and syndicated loan markets into individual bank loans. Business
loan quality was noted to be stabilizing, with little additional
improvement expected in the near-term.

Prices/costs.

Cost pressures remained elevated, even though raw materials prices
declined further in October and early November. Steel prices, in
particular, moved lower over the reporting period. Contacts again
reported extended lead times for specialty metals. In addition, tires
were reported to be in shortage, with a contact indicating tight
supplies are likely to persist until new plants come on-line in 2013.
Wholesale price increases slowed, but cost pressures remained elevated
for food, fabrics, diesel fuel, and shipping. Retailers reported they
were absorbing most of these higher costs in their margins, but some
pass-through to downstream prices continued. Wage pressures remained
moderate.

Agriculture.

The corn and soybean harvests were running ahead of pace in the
District, though yields were coming in below trend. For the District as
a whole, more bushels of corn were harvested than a year ago, but
soybean production was down. Crop storage on farms increased, as many
farmers are expecting to sell their crops for higher prices in the
future. This higher farm storage has led to relatively lighter supplies
at grain elevators for this time of year, and end users, including
ethanol plants, faced the prospect of higher prices. Corn, soybean, and
cattle prices were up from early October, while milk and hog prices were
down. With the exception of soybeans, these prices were up from last
year, boosting farm incomes. There was another surge in farmland values
and cash rental rates for the District.

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

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