–Hiring Was Steady Or Showed Modest Increase Across Many Districts

WASHINGTON (MNI) – The following is the first part of the text of
the summary beginning Wednesday’s Beige Book survey of regional economic
conditions, prepared by the Cleveland Federal Reserve Bank through April
2:

Reports from the twelve Federal Reserve Districts indicated that
the economy continued to expand at a modest to moderate pace from
mid-February through late March. Activity in the Boston, Atlanta,
Chicago, Dallas, and San Francisco Districts grew at a moderate pace,
while Cleveland and St. Louis cited modest growth. New York reported
that economic growth picked up somewhat. Philadelphia and Richmond cited
improving business conditions. The economy in Minneapolis grew at a
solid pace and Kansas City’s economy expanded at a faster pace.

Manufacturing continued to expand in most Districts, with gains
noted in automotive and high-technology industries. Manufacturers in
many Districts expressed optimism about near-term growth prospects, but
they are somewhat concerned about rising petroleum prices. Demand for
professional business services showed modest to strong growth and
freight volume was mainly higher. Reports on retail spending were
positive, with the unusually warm weather being credited for boosting
sales in several Districts. While the near-term outlook for household
spending was encouraging, contacts in several Districts expressed
concerns that rising gas prices could limit discretionary spending in
the months to come. New-vehicle sales were reported as strong or
strengthening across much of the United States. Tourism increased in
most reporting Districts. Residential real estate showed some
improvement, with many contacts citing expansion in the construction of
multi-family housing. Activity in nonresidential real estate increased
or held steady in most Districts. Agricultural conditions were generally
favorable. Mining activity expanded and oil extraction rose, while
natural gas drilling slowed. Banking conditions were largely stable,
with some improvement seen in loan demand. Several Districts reported
increased credit quality.

Hiring was steady or showed a modest increase across many
Districts. Difficulty finding qualified workers, especially for
high-skilled positions, was frequently reported. Upward pressure on
wages was constrained. Overall price inflation was modest. However,
contacts in many Districts commented on rising transportation costs due
to higher fuel prices.

Manufacturing

Manufacturing continued to expand in most Districts, although
respondents in the Boston and St. Louis Districts reported that
manufacturing was mixed and Chicago reported that growth in
manufacturing production leveled off after a strong start to the year.
Contacts in automotive industries reported gains in Cleveland, Atlanta,
and Chicago. The Kansas City, Dallas and San Francisco Districts
reported increased sales for high-technology manufacturers, with Dallas
noting key demand drivers continue to be mobile applications, cloud
computing, and automobiles. The Philadelphia and Dallas Districts
indicated improvement in demand for manufacturing with ties to
residential housing and construction. Cleveland steel producers and
service centers reported that volume was trending slightly higher, while
Chicago steel producers said that capacity utilization was steady. For
refiners in San Francisco, capacity utilization rates continued to hold
largely stable, as weak domestic gasoline demand was offset by strong
foreign demand for distillate products. In Dallas, Gulf Coast refiners
noted steady margins overall.

Manufacturers in Boston, Cleveland, and Chicago are expanding
payrolls but finding it difficult to find highly-skilled workers.
Comments from the Cleveland, Atlanta, Chicago, and Kansas City Districts
indicated a rise in capital spending. Manufacturers in over half the
Districts commented on increasing input costs, focusing, in particular,
on rising petroleum prices. Contacts in Boston, Philadelphia, Chicago,
Kansas City, and San Francisco remained optimistic that activity will
increase in the near term. However, several respondents in Cleveland and
Dallas noted that their outlooks have become more cautious.
Manufacturers in Boston and Cleveland expressed concern about the
European economy. Expectations were mixed in St. Louis.

Nonfinancial Services

Demand for professional business services was characterized as
modest to strong in the Boston, Philadelphia, Richmond, Kansas City, and
Dallas Districts. St. Louis, Minneapolis, and San Francisco reported
that demand was mixed. Boston and Richmond cited rising demand for
advertising, marketing, and consulting services, while accounting
services saw a modest pickup in Minneapolis and Dallas. Growth in
technology-related services to the energy sector was noted in the
Minneapolis and Kansas City Districts. St. Louis and San Francisco
reported that activity in the healthcare sector was flat to down. Both
Richmond and San Francisco noted increased sales for restaurants and
food-related service providers. Freight transportation services were
higher in the Cleveland, Richmond, and Kansas City Districts. Reports
from Atlanta and Dallas were mixed due to declining air cargo volumes
and railroad shipments. St. Louis reported that plans have been
announced to close certain freight transport and distribution
facilities. Contacts in Cleveland, Richmond, and Kansas City noted a
shortage of qualified truck drivers.

Consumer Spending and Tourism

Retail spending continued to improve in almost all Districts.
Contacts in the Boston, New York, and St. Louis Districts characterized
retail activity as strong. Reports from Chicago and Richmond indicated a
significant strengthening in retail spending. Sales expanded at a modest
or moderate pace in Philadelphia, Minneapolis, Kansas City, and Dallas.
Unseasonably warm weather boosted sales in the Boston, Philadelphia,
Cleveland, Richmond, and Chicago Districts. Grocers in Cleveland and San
Francisco reported sales as unchanged. Apparel sales were strong in
Boston and New York. Purchases at home improvement stores were up in
Richmond and Chicago. Reports from Boston, Atlanta, St. Louis, and
Kansas City indicate a positive near-term outlook for retail spending;
however, contacts in Philadelphia, Cleveland, Atlanta, Chicago, and
Kansas City expressed concerns that rising gas prices could limit
discretionary spending in the months to come.

Automobile sales were reported as stronger or strengthening during
late February and early March in most Districts. Mild winter weather
boosted sales in Cleveland but depressed motor vehicle service spending
in New York and Minneapolis. Rising gas prices lead to increased
purchases of fuel-efficient vehicles in Kansas City, Dallas, and San
Francisco. Contacts in Philadelphia and Kansas City expect continued
sales strength. Reports from Cleveland showed a mixed outlook, with some
respondents expecting solid sales and others seeing the current pace of
sales as unsustainable. Used-vehicle sales were reported as strong or
robust in Cleveland and San Francisco.

Tourism was characterized as strong by respondents in the Boston,
New York, Richmond, and Atlanta Districts. Minneapolis indicated a
slowdown in activity due to a general lack of snow this winter.
Conversely, warm weather boosted tourism in Richmond. Bookings were
strong in New York, and occupancy rates improved in the Boston, New
York, Atlanta, and San Francisco Districts. In Boston and Kansas City,
business travel continues to be the main driver of tourism activity.
Contacts in Boston and Atlanta expressed concern over high fuel prices
as a possible drag on leisure spending.

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

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