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

Dallas Continued:

Retail Sales

Retail sales growth moderated since the last report but showed
continued gains over the comparable period a year ago. Cooler weather
spurred winter clothing sales, and one retailer reported strong online
sales. Contacts indicated that they are comfortable with level of
inventories. Eleventh District retail sales growth trended roughly
in-line with the nation over the reporting period, according to two
large retailers. Overall, expectations are for modest growth this
holiday season.

Demand for automobiles held steady. Vehicle inventories have mostly
normalized from the tsunami-related shortage experienced earlier in the
year, but some foreign manufactures have been recently affected by the
flooding in Thailand. The used car market continued to be tight.
Contacts expect sales to slow seasonally through year end, and then to
rise moderately in 2012.

Services

Demand for staffing services held steady at high levels. One
contact reported engineering, IT and healthcare as strong sectors, and
another mentioned solid demand for steel workers. Outlooks remain
cautious but were more optimistic than the previous reporting period,
with contacts expecting demand to remain flat or improve by mid-2012.
Demand for accounting services was flat, and outlooks were unchanged.
Legal firms reported steady demand, with a slight pickup in litigation
activity and continued strength in intellectual property, energy and
some real-estate related services.

Reports from transportation service firms were mixed. Railroad
firms reported a broad-based increase in shipments during the reporting
period, but said that the numbers were somewhat artificially inflated
due to capacity coming back online after the flooding in the northern
U.S. Overall container volumes declined during the reporting period, and
outlooks were slightly less optimistic than the last report. Small
parcel shipments rose in October partly due to growth in retail trade
activity. Airlines reported solid and steady demand over the past six
weeks. A major airline noted that business travelers were more price
sensitive than earlier in the year. Domestic demand and travel to Latin
America remained strong, but travel to Europe and Asia was weak. Airline
contacts expect to see stable demand through year end.

Construction and Real Estate

Contacts in the housing sector continued to note improvement.
Inventories of existing homes fell further since the last report, and
new home inventories remained lean. Single-family home sales are better
according to contacts, but economic uncertainty is keeping many would-be
buyers on the sidelines.

Apartment demand rose even more since the last report, and contacts
are very positive in their outlooks. Some respondents noted increased
sales of apartment complexes to investors.

Contacts that lease to industrial, retail and business firms noted
an increase in demand. However, sales of commercial properties were
sluggish given the current financial environment.

Financial Services

Financial firms reported steady but soft demand for loans. National
banks noted strong demand from large corporations but flat or declining
middle-market lending activity. Regional banks said loan demand was
flat, and loan pricing remained somewhat aggressive. The quality of
loans outstanding continued to improve, with contacts noting a decline
in problem loans. Outlooks are cautious, although contacts were less
pessimistic than they have been over the past few months.

Energy

Drilling activity remains strong, with 20 new land rigs added in
Texas since the last report. Shale-directed activity continues at high
levels. Revenues are growing and backlogs remain solid. Activity in the
Gulf of Mexico also rose by six rigs, with new permits issued for deep
water drilling.

Agriculture

The District remained in drought, although severity lessened
slightly in parts of Texas and New Mexico that received some rain in
recent weeks. Planting of winter wheat continued at a fairly normal pace
but the crop was in poorer condition than last year due to very low soil
moisture. Livestock sell-offs continued at a slower pace, as many
producers have already liquidated much of their herds. Grain prices fell
slightly over the reporting period, largely due to lower export demand.
By contrast, cattle prices were higher than six weeks ago and beef
exports remained very strong.

(2 of 2)

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]