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

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy expanded at a moderate pace over the
past six weeks. Energy activity remained strong, and construction and
real estate activity picked up as housing demand strengthened. Demand
for business services improved slightly, and transportation services
activity continued to expand. Reports on manufacturing activity were
mixed. Growth in retail and auto sales slowed over the reporting period,
but Eleventh District sales continued to outperform the national
average, according to respondents. Lenders noted steady loan demand.
Agricultural conditions improved slightly. Price and wage pressures were
modest over the reporting period, and employment levels continued to
edge up. Many respondents across industries said continued uncertainty
about upcoming elections was clouding outlooks.

Prices Most reporting firms said prices were steady. Several
contacts in the transportation services industry noted higher diesel
prices led to higher costs. Shipping firms expect higher ground and air
prices as a result. Airline industry contacts noted that business
travelers were very price sensitive and soft demand was keeping a lid on
fares. Food and cattle producers noted price increases due to continued
commodity price pressures.

The price of WTI rose during the reporting period, reaching nearly
$99 per barrel. Natural gas prices remained depressed. Retail and
on-highway prices of both gasoline and diesel ended the reporting period
slightly higher. Contacts noted that Hurricane Isaac had little impact
on energy pricing. The prices of petrochemical products were flat to
slightly up over the past six weeks.

Labor Market Employment held steady or increased at most firms.
Shortages of truck drivers continued to be reported in several
industries. Accounting and legal firms noted increased hiring and said
compensation has risen this year. Staffing firms reported additional
hiring in response to high levels of demand, but there were no reports
of pressures on wages or salaries. Skill shortages remained an issue for
energy services firms, although some large firms noted slight easing.
Retailers said hiring increased since the last report and expected
holiday hiring to be stronger than last year.

Manufacturing Overall demand for construction-related products was
mixed over the last six weeks. Producers of stone, clay, glass and
lumber reported steady to slightly increased demand, with particular
strength in residential activity. Fabricated metals contacts said growth
in demand had slowed. Reports from primary metals contacts were mixed,
although a large electrical wire manufacturer said demand in August was
stronger than in any other month this year. Across the board, contacts
noted uncertainty in their outlooks due to the upcoming election.

High-tech manufacturers said sales growth slowed modestly over the
reporting period. Most contacts attributed the slowdown to weakened
international demand and lower forecasts for world

economic growth. Weaker demand was noted across a broad range of
products, including industrial, computers and communications
infrastructure. Contacts expect demand to remain weak through year-end.

Demand for paper products increased in line with normal seasonal
patterns. Food producers noted increased business over the last thirty
days due to a slight pickup in consumer demand. Reports from most
transportation equipment manufacturers were mixed; aviation
manufacturing orders were down slightly while other firms noted flat to
increased activity.

Petrochemicals producers said demand remained mostly flat since the
last report. Ethylene production fell to a three-year low as plants went
offline for maintenance and improvement. Ethylene and polyethylene
margins remained relatively stable and largely healthy, although exports
softened. Gulf Coast refiners said operating rates remained over 90
percent, and strong export demand was preventing a buildup in domestic
inventories. Refinery margins rose to the highest level since 2008 in
August and have since remained very healthy.

Retail Sales Retail sales growth softened over the reporting
period, and sales are up slightly year-over-year. Sales in the Eleventh
District continue to outperform the nation, according to two national
retailers. Contacts noted that holiday hiring has begun or will begin
soon, and hours worked are up from the previous report. Commodity input
costs are easing, but the drought has caused prices for grains and
feedstock to rise. The outlook for the rest of the retail quarter, which
ends in October, is mixed but contacts are cautiously optimistic for the
fourth quarter.

Automobile sales were flat over the past six weeks but are up
year-over-year. Contacts expect a modest increase in selling prices with
the 2013 models due out soon. Outlooks are generally uncertain because
of the election and consumer confidence, but fourth quarter is expected
to be better year-over-year.

Services Staffing firms said demand growth slowed slightly but is
expected to turn around in coming weeks. Demand from the steel industry
was very strong, with contracts extending through 2014. Engineering and
mortgage processor jobs were in high demand, while the need for oil
workers has become less crazy. There were fewer requests for workers
in the plastics industry. Outlooks remained fairly optimistic.

Accounting firms noted a slight increase in activity. Demand for
insurance and audit services experienced positive growth, while that for
advisory and tax services was flat to slightly down. Demand for
energy-related services remained strong. Legal contacts said overall
demand for services was not much changed since the last report. However,
activity related to energy, labor-services and real estate had
increased. Outlooks were cautiously optimistic.

Reports from transportation service firms were mostly positive.
Railroad contacts said volumes picked up since the last report. Motor
vehicle shipments continue to be strong, and contacts noted healthy
volumes of some construction-related products, including lumber and wood
and crushed stone. Container volumes continued to increase and shipping
firms said small parcel volume growth had recently accelerated, led by
improvements in wholesale and retail trade. Air cargo volumes continued
to decline due to weakness in the international sector.

Airlines noted softer passenger demand since the last report,
citing weakness in Europe and Asia. Respondents were cautious in their
outlooks, and slightly more pessimistic than six weeks ago.

(1 of 2)

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

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