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 grew at a moderate pace over the past
six weeks. Overall manufacturing activity continued to expand. Demand
for business services remained solid, and transportation services
activity increased. Respondents said retail sales grew at a somewhat
slower pace than the last report, and automobile sales held steady. The
housing sector continued to improve, and commercial real estate leasing
activity held steady. Financial firms noted mixed loan demand. Overall
energy activity remained strong, although gas-directed drilling
continued to decline. Agricultural conditions deteriorated slightly.
Employment levels were steady to slightly higher, and prices were mostly
unchanged. Wage pressures remained minimal. Outlooks across industries
were generally positive, but some respondents expressed concern about
European debt issues, U.S. political uncertainty, and healthcare costs.

Prices

Most responding firms said prices were unchanged from the last
reporting period. However, accounting firms noted a modest rise in
rates, airlines reported higher fares, and some construction-related
manufacturers said they were able to raise selling prices as a result of
improved demand. Overall, input costs were flat to down, with reports of
lower prices for cotton, scrap metal, and steel. The recent decline in
fuel prices lowered costs for airlines and freight transportation firms.

The price of WTI ranged from around $83 per barrel in early June to
near $85 in early July. Natural gas prices remained depressed but rose
50 cents to around $2.85 per thousand cubic feet over the same period.
The price of gasoline declined about 40 cents over the reporting period.
Prices for several petrochemical products fell sharply due in part to
softening global demand.

Labor Market

Most responding firms said employment levels were flat to up
slightly. Staffing firms reported demand remained steady at very high
levels and noted rising demand for financial analysts, steel and metal
fabricators, and construction workers. Reports of hiring came from some
retailers, automobile dealers, and primary metals, lumber, paper, and
food manufacturers. Wage pressures remained minimal, although legal
contacts said raises and bonuses had improved, and rising wages were
noted for manufacturing workers with specialized skills such as machine
operators.

Manufacturing

Overall demand for construction-related products held steady since
the last report, and respondents’ outlooks have become slightly more
guarded. Producers of stone, clay, and glass reported improved demand
and higher capacity utilization rates compared to earlier in the year.
Contacts in the lumber industry noted a pickup in demand, while primary
metals manufacturers reported slight declines. Producers of fabricated
metals reported steady sales activity, but said they were concerned
about the continuity of some private projects.

Conditions weakened in the high-tech manufacturing sector since the
last report. Most respondents said growth in orders slowed or remained
flat largely due to a weakening global economy and more uncertainty in
outlooks. Contacts said that inventories were close to desired levels
and that employment levels were stable. High-tech manufacturers expect
growth to remain flat or weaken slightlya change from earlier in the
year when most contacts expected a pickup in the second half.

Demand for paper products held steady, and contacts said they
expect modest sales growth for the year. Food producers said sales
activity increased over the past six weeks and orders were up
significantly from year-ago levels. One food manufacturer reported
adding several new workers in part due to strong demand. Automobile and
aviation equipment manufacturers said demand held steady since the last
report. Expectations are for seasonal pickup in automobile sales over
the summer, but aviation manufacturers expect sales to remain flat.

Petrochemicals producers reported a sharp decline in prices due to
softening global demand, lower feedstock prices, and capacity coming
back online following unplanned outages earlier in the year. Still,
margins have remained relatively healthy for ethylene and polyethylene
producers. Domestic demand for PVC, tied to residential construction,
strengthened, and exports continued to be a major source of sales.
Contacts noted inventories of gasoline and distillates were below
normal, and Gulf Coast refineries were operating at rates above 90
percent in order to catch up.

Retail Sales

Retail sales increased but the pace of growth decelerated slightly
compared to earlier in the year. Sales of apparel, bedding, household
items, and small furniture fared well. Discount retailers said sales of
food and sundries continued to perform the strongest. Overall sales
growth in the Eleventh District continued to outpace the nation, on
average, according to three large retailers. Outlooks are cautiously
optimistic and contacts say it appears as if the environment has
improved slightly for the consumer.

Automobile sales continued to grow at a steady pace. Inventories
were at desired levels and prices remained stable. Auto dealers expect
sales growth to continue at the same pace through year end.

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

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