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



Economic activity in the Twelfth District continued to expand at a
moderate pace during the reporting period of late February through the
end of March. Despite higher energy prices, overall price pressures for
final goods and services remained modest, as did wage gains. Sales of
retail items and demand for business and consumer services rose further.
District manufacturing activity increased on net. Demand was robust for
agricultural producers but remained uneven for providers of energy
resources. Activity in District housing markets strengthened modestly
but remained lackluster on balance, and demand for nonresidential real
estate was largely unchanged. Contacts from financial institutions
reported small increases in overall loan demand and slight improvements
in credit quality and availability.

Wages and Prices

Price inflation for most final goods and services remained subdued
during the reporting period, with the notable exception of gasoline.
While contacts noted an increase in the prices of oil and selected other
commodities, resulting cost increases generally were absorbed in profit
margins rather than pass- through to final prices. Restaurant prices
were an exception, with notable increases reported. Looking ahead,
contacts in general expect prices for their products to hold largely
stable or increase slightly during the second half of the year compared
with the first half. Upward wage pressures were quite modest overall,
held down by high levels of unemployment and limited demand for new
workers. However, wage gains remained pronounced for highly skilled
workers in information technology fields, and significant gains were
also reported for experienced workers in some segments of manufacturing.
The reports suggested that wage gains are likely to remain limited going
forward, as most contacts plan to engage in only modest hiring for the
foreseeable future.

Retail Trade and Services

Retail sales continued to improve. Discount chains reported modest
increases in sales, while traditional department stores noted stronger
gains, particularly in the luxury segments of the market. Demand
continued to improve for retailers of home furnishings and major
appliances. By contrast, sales remained largely flat for grocers.
Sales of new automobiles continued to strengthen, with high gas prices
spurring especially strong growth for fuel-efficient vehicles.
Similarly, demand for used vehicles remained robust. Demand for business
and consumer services strengthened further on balance. Sales continued
to expand at a moderate pace for providers of technology services, and
contacts anticipate growth will pick up in the second half of the year.
Demand has improved in the radio and television broadcasting industries.
By contrast, demand for professional services was largely flat, as was
demand for health-care services. Sales activity was reported to be up
somewhat for restaurants and other food-service providers. Activity in
the District’s travel and tourism industry picked up further, with
contacts in Hawaii and Southern California noting ongoing gains in
visitor volumes and hotel occupancy rates.


District manufacturing activity rose a bit on net during the
reporting period of late February through the end of March. Makers of
commercial aircraft and parts saw limited new orders, but an extensive
order backlog kept production rates near capacity. Manufacturers of
semiconductors and other technology products reported some firming in
new orders and indicated that they expect demand growth to pick up
further in coming months. Capacity utilization rates continued to hold
largely stable for petroleum refiners as weak domestic gasoline demand
was offset by strong foreign demand for distillate products. Production
activity was largely unchanged for metal fabricators, but demand
remained quite depressed for producers of wood products. Food
processors saw solid growth in orders and sales.

Agriculture and Resource-related Industries

Demand for agricultural products and mined metals remained strong,
while extraction activity of natural resources used for energy
production was uneven. Final sales and orders were robust for a broad
range of crop and livestock products, and recent precipitation has eased
concerns in parts of the District about drought during the upcoming
growing season. Contacts noted increases in the costs of some
inputs,such as fertilizer. Expanding activity in the mining sector
continued to be supported by high prices for a variety of precious
metals and metallic elements used for specialized industrial purposes.
Mild winter weather continued to tamp down demand for natural gas,
prompting additional declines in extraction activity, while elevated
price levels and robust foreign demand spurred further increases in oil

Real Estate and Construction

District home demand improved slightly but remained weak on
balance, and demand for commercial real estate was largely unchanged.
Sales of new and existing homes continued to improve modestly in certain
areas of the District, although the pace remained quite lackluster
overall. Furthermore, despite relatively low interest rates, contacts
noted that tight financing terms more generally held down the pace of
sales. With inventories of available homes still very high, new
construction activity stayed at depressed levels and home prices
remained largely flat. Demand for commercial real estate continued to
be weak overall, as reflected in elevated vacancy rates and limited
leasing activity for office and industrial space in many parts of the
District. On the other hand, growth in the technology sector has led to
rapid absorption of commercial space in certain locales, such as the San
Francisco Bay Area and Seattle. As a result, increased construction
activity for new office space is expected for these areas over the next
twelve months.

Financial Institutions

District banking contacts reported that overall loan demand rose
modestly since the prior reporting period, and credit quality and
availability improved slightly. While businesses generally remained
highly cautious about their capital spending plans, the volume of new
commercial and industrial loans edged up as businesses continued to
pursue targeted investments geared towards increasing productivity. On
the consumer side, demand for credit was largely unchanged. Credit
quality improved slightly, with reports indicating a general decline in
loan delinquencies. Although lending standards have remained relatively
restrictive for most types of business and consumer loans, contacts
reported modest improvement in overall credit availability. The reports
also indicated that competition among lenders has XII-4 been creating
downward pressure on rates and fees for well-qualified small and
medium-sized businesses.

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