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


The Tenth District economy expanded at slightly slower pace in late
August and September compared to earlier in the summer. Consumer
spending slowed somewhat, manufacturing growth was more subdued, and
transportation firms reported flat conditions. Growth in commercial real
estate activity slowed marginally, but remained on a positive trend.
Residential sales and construction continued to grow at a solid pace.
Drought conditions hurt agricultural production, though farm incomes
were generally healthy due to higher crop prices and insurance programs.
Energy activity remained solid, and bankers noted steady loan demand,
better loan quality, and increased deposits. Prices rose moderately, but
wage pressures were contained outside of a few skilled positions.

Consumer Spending. Consumer spending slowed modestly and contacts
were less optimistic about future sales in the months ahead. Retail
sales declined slightly from the previous survey, but remained above
year-ago levels. Several contacts cited political uncertainty and rising
gasoline prices as key reasons for the slowdown. Expectations for future
sales also eased somewhat, while store inventories were largely
unchanged. Growth in auto sales was less robust than previous months,
and expectations for future sales weakened slightly. However, several
auto dealers in Oklahoma noted higher sales due to strong energy
activity in their areas. Contacts said sales were strongest for
mid-sized family sedans and crossover SUVs, while sales of full-size
trucks and SUVs remained weak. Auto inventories increased and most
dealers anticipated levels to increase further. Restaurant sales slowed
markedly and expectations also fell. Some contacts noted higher food
costs, rising gasoline prices, and overall consumer uncertainty as
reasons for the decline. Tourist activity edged lower, slightly more
than the usual seasonal slowing, and most contacts expected further
decreases in the months ahead.

Manufacturing and Other Business Activity. Manufacturing activity
in the Tenth District continued to expand, although at a slower pace
than in previous months. Factory orders and shipments declined, while
future hiring plans generally remained positive. Machinery production
fell considerably since the last survey, with some contacts citing
European weakness and political uncertainty as key reasons for the
slowdown. In contrast, metals and transportation production remained
solid. Manufacturers’ capital spending plans moderated somewhat, but
firms still indicated overall plans for expansion. Transportation
activity was flat, although several firms reported higher shipments of
perishable food products and more firms reported an increase in capital
spending plans. Expectations for future transportation activity eased
slightly from the previous survey. Sales growth among high-tech firms
remained somewhat sluggish, with several firms citing political
uncertainty as a contributing factor. However, expectations for future
activity were more positive, and capital spending plans were generally

Real Estate and Construction. Solid growth in residential real
estate activity continued in late August and September, while expansion
of commercial real estate activity slowed somewhat. Housing starts edged
higher, and limited availability of workers was reported as an issue for
some builders in states with low unemployment rates. Expectations for
future homebuilding remained favorable, and building materials were
generally available. Despite the improvement in housing starts, sales at
construction supply firms were considerably slower, and many businesses
were pessimistic about future sales. Home sales continued to grow at a
solid pace, though slightly slower than in the previous survey.
Residential realtors said mid-range homes sold well, while the luxury
home market was still exceedingly slow. Several contacts noted a rise in
sales to investors, as higher rental rates have increased profit
potential. Expectations for future home sales flattened somewhat, but
prices were generally rising and expected to increase further. Mortgage
lending activity eased slightly, and one contact noted continued
tightening of underwriting guidelines. Growth in commercial real estate
activity slowed marginally from the previous survey, but was generally
solid overall and most contacts remained optimistic about future months.
Vacancy rates continued to fall, but absorption rates flattened out.
Office prices and rents were also flat from the previous survey,
although some increases were anticipated in coming months.

Banking. In the recent survey period, bankers generally reported
steady to stronger loan demand, improved loan quality, and increased
deposits. Overall loan demand was favorable as most respondents reported
stable demand for commercial real estate and consumer installment loans,
while demand for residential real estate and commercial and industrial
loans edged slightly higher. Credit standards remained largely unchanged
in all major loan categories. The majority of bankers reported improved
loan quality compared to a year ago, and nearly all banks expected the
outlook for loan quality over the next six months to be the same or
better. More institutions

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