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

FOURTH DISTRICT – CLEVELAND

Economic activity in the Fourth District continued to expand since
our last report, but at a slower pace. On balance, manufacturers
reported a slight rise in production. New-home construction ticked down,
while nonresidential builders saw stronger inquiries. Retailers and auto
dealers noted little change in sales during May. Wet shale gas drilling
and production increased, though the demand for coal has slowed. Freight
transport volume moved lower. And there was some easing in the demand
for business credit.

Little hiring was reported across industry sectors. Staffing-firm
representatives indicated that the largest numbers of job openings were
found in healthcare and information technology. Wage pressures are
contained. Input prices were stable, apart from the volatility in
residential building materials.

Manufacturing.

On balance, District factories reported a slight increase in new
orders and production during the past six weeks, although we continued
to hear reports about a weakening in orders from European customers.
Almost all of our respondents said that output was above year-ago
levels. The outlook by manufacturers was mixed. Respondents who sell
products to aerospace, auto, and energy companies expect moderate growth
in the near term. Other contacts are less certain about growth prospects
than they had been a few months earlier. Shipping volume by steel
producers and service centers was flat or down slightly, with demand
being driven mainly by the transportation and energy sectors. Because of
uncertainty about market conditions in the upcoming months, many steel
producers are in the process of lowering their inventories. District
auto production showed a moderate pick-up during May on a
month-over-month basis, while rising substantially from year-ago levels.
Increased production year-over-year was attributed mainly to the
abatement of supply chain issues.

Capacity utilization was at normal levels for most producers after
adjusting for seasonal factors. Capital budgets remain on track, with
several contacts reporting that they intend to ramp up spending during
the second half of the year. Three manufacturers said that they are
currently planning capacity expansions. Raw material prices were stable
or declined slightly. Most steel makers lowered their prices; otherwise,
producer prices held steady. Little change in payrolls was noted,
although attracting skilled workers remains difficult. Wage pressures
are contained.

Construction.

Single-family home construction slowed a bit across the District
relative to the March/April time frame, although sales were higher
compared to year-ago levels. The outlook by homebuilders is less
favorable than in our last report. They believe that the domestic
political climate and a lowering in consumer sentiment may hurt sales.
Contracts were in all price-point categories, except for the high-end.
Buyers are looking to downsize and are noticeably more cost conscious. A
few reports indicated an uptick in new-home prices within the Fourth
District, though margins are still tight. Volatility in building
material prices, which began late in the first quarter, has persisted.

Nonresidential contractors described current business conditions as
good and much better than a year ago. Inquiries were strong, which
should help bolster near-term backlogs. Projects were broad based,
driven by education, healthcare, manufacturing, and multi-family
housing. Financing has become more readily available, except for
speculative projects. The outlook is fairly positive, but builders are
concerned about the upcoming elections and events in Europe and the
impact they could have going into 2013. We heard reports of a slight
rise in building material prices. Even with the pickup in volume,
residential and nonresidential builders have been reluctant to hire
additional workers. One builder commented that he is hesitant to add
workers until he has a backlog of two-to-three years. Residential and
commercial subcontractors have kept their billing rates steady.

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** MNI Washington Bureau: 202-371-2121 **

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