WASHINGTON (MNI) – The following is the first part of the text the
Dallas section of the Federal Reserve’s Beige Book report on current
financial conditions released Wednesday:

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy grew at a moderate pace since the
last report. Manufacturing activity was mixed. Contacts said retail
sales were robust and automobile sales held steady. Demand for business
services was solid, and activity in transportation services rose
modestly. Housing and commercial real estate markets continued to
improve slightly. Construction activity remained subdued, with apartment
construction being the major exception. Financial services respondents
said overall loan demand was flat to up slightly. Energy activity slowed
somewhat, but respondents expect strong growth in activity in 2012.
Agricultural conditions remained weak. Employment levels were mostly
unchanged. Price and wage pressures were subdued.

Prices

Contacts across industries said prices held steady or declined. The
exceptions were producers of paper, fabricated metals and food who noted
increased prices for some inputs. Crop commodity prices were generally
lower than six weeks ago, while cattle prices held fairly steady. The
price of WTI moved in a narrow range between $95 and $100 per barrel
during the reporting period. Natural gas prices remained low, near $3.50
per thousand cubic feet, due to unseasonably warm weather and large
inventories. Diesel and gasoline prices declined by 20 cents per gallon
over the past six weeks, and prices of petrochemicals and plastics held
steady or fell slightly.

Labor Market

Employment levels were flat to up slightly at most responding
firms. Staffing firms continued to note high levels of demand. Energy
industry respondents said labor shortages for skilled workers, such as
engineers, geologists, and machinists, remained a barrier to expansion.
Some producers of food, fabricated metals and transportation equipment
noted moderate employment increases, and auto dealers said they continue
to look for additional workers. Wage pressures remained minimal,
although staffing firms noted modest increases in billing rates for
skilled workers. Several firms noted plans to give employees
cost-of-living adjustments next year.

Manufacturing

Construction-related manufacturers’ responses were mixed. Stone,
clay and glass producers said demand was below expectations, while
lumber producers noted no change in activity. Fabricated metals
producers said demand had increased since the last report, and some
reported a pickup in private nonresidential projects, especially from
foreign investors. Primary metals demand was mostly stable and was
characterized as “decent but not great.” Construction-related firms’
outlooks are cautiously optimistic for 2012.

Respondents in high-tech manufacturing reported that sales grew at
a weak to moderate pace since the last report. Sales and prices for DRAM
continued to be very weak, while demand and prices for processors were
holding up much better. Respondents said that increased demand for
mobile devices and data storage should drive up demand for
semiconductors by the second quarter of 2012. Respondents noted,
however, that economic uncertainty remains very high.

Conditions in the paper industry were mixed. Most contacts noted
weakness, although one reported an unusually busy December with strong
orders from the auto and construction industries. Respondents expect
conditions to remain about the same in 2012 as in 2011. Automobile and
aviation equipment manufacturers said demand had picked up slightly
since the last report. Expectations are for stronger sales of automobile
equipment in 2012, but aviation manufacturers expect only modest growth.
Food producers noted a pickup in demand since the last report, in part
due to stronger consumer demand, and partly due to increased market
share. Outlooks among food industry contacts remain positive.

Petrochemical producers noted a seasonal slowdown in demand for
most products. Producers of plastics and plastic feedstocks said prices
and inventories stabilized after sharp declines in October and November.
Demand for chlorine showed weakness beyond the normal seasonal slowing,
and some contacts attributed the weakness to slower global growth.
Contacts in the refining industry noted weak domestic consumption of
refined products, especially gasoline, although export markets were
still strong. Inventories were said to be near expectations for this
time of year. While both gasoline and diesel prices slipped over the
past six weeks, refiners’ margins remained at healthy levels, according
to contacts.

Retail Sales

Retailers said sales activity was robust during the reporting
period, and retail sales growth saw moderate gains over the comparable
year-ago period. However, contacts noted consumers remain cautious and
value-driven. The Eleventh District and Midwest in general exhibited
stronger sales growth than other parts of the nation, according to the
responding firms. Inventories have increased over the prior year, but
are at desired levels. Jewelry, small electronics and apparel were areas
of strength in retail this holiday season.

Automobile sales held steady from the prior report and have
increased year-over-year. The used car market remains tight. Contacts
expect 2012 will be another good year, with moderate increases in sales.
Vehicle inventories are back to normal levels for the most part,
although some contacts reported light inventories due to increased
activity.

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

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