WASHINGTON (MNI) – The following is the second and final 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:

Real Estate and Construction

Residential real estate activity improved in most Districts, though
Cleveland and San Francisco noted that activity remained lackluster or
at low levels. The St. Louis and Minneapolis Districts reported
increases in building permits. The construction of multi-family housing
units, including apartments and senior housing, expanded in many
Districts. Home prices continued to decline in Boston, New York, and
Minneapolis, but were largely flat in San Francisco. Contacts in Boston,
Philadelphia, and Kansas City indicated that mild weather had boosted
real estate activity.

Non-residential construction activity improved in the Philadelphia,
Cleveland, Richmond, Atlanta, Chicago, and St. Louis Districts, though
many of these contacts characterized the improvement as slow. Boston,
New York, and San Francisco characterized non-residential real estate
activity as unchanged or steady. The energy and high-tech sectors were
driving much of the demand in the Dallas District. San Francisco noted a
rise in the demand for office space from the technology sector.
Cleveland and Chicago saw a boost in healthcare-related construction.
Projects related to the education sector are showing growth in Boston,
Cleveland, Philadelphia, and Richmond. The outlook of builders is
described as positive or slowly improving in the Philadelphia,
Cleveland, Atlanta, and Kansas City Districts, and as cautiously
optimistic in Boston.

Banking and Finance

For most Districts reporting on financial services, banking
conditions remained stable, with modest improvements in demand for
lending. Loan demand was reported as improved in New York,

Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas,
and San Francisco, while lending activity was unchanged in St Louis. The
Dallas District reported improved sentiment by national and regional
banks due to improved middle-market and large corporate lending.
Contacts in Cleveland, Richmond, and San Francisco reported that
increased competition among lenders has been driving more aggressive
loan pricing. In general, the demand for commercial and industrial loans
remained steady, while several Districts reported an increase in
commercial real estate lending activity. The Philadelphia and Cleveland
Districts reported increased lending for multifamily housing and health
care, and contacts in Richmond cited increased lending to small business
to finance inventory and capital expenditures. Consumer lending has
remained stable or risen modestly across a few Districts. The Cleveland
and Richmond Districts reported increased home equity and auto lending,
while bankers in Chicago noted improved credit availability for auto
loans and credit cards. Several Districts reported that credit standards
remain stable, but Richmond bankers reported that they were offering
easier terms to attract new commercial borrowers. Several Districts
reported increased credit quality, as delinquencies have continued to
decline and few problem loans have been reported.

Agriculture and Natural Resources

Recent rain and snowfall has helped alleviate dry agricultural
conditions from earlier in the year. Nonetheless, the Atlanta,
Minneapolis, Kansas City, and Dallas Districts have all reported certain
areas where drought conditions continue to persist. Due to unseasonably
warm weather, contacts in several Districts reported that the planting
of some crops is beginning earlier than normal, including corn in
Chicago and wheat in Minneapolis. San Francisco commented that there has
been an increase in certain input costs, such as fertilizer, while
Chicago reported tight supplies of some agricultural chemicals and corn
seed. Atlanta and Chicago reported an increase in the prices paid to
farmers for soybeans; Chicago noted that the increase was due to
lower-than-expected harvests in South America. Livestock prices rose in
the Chicago, Minneapolis, and Kansas City Districts, while orders for
livestock were robust in San Francisco. Farmland values in Kansas City
continue to rise and are at record highs. Activity in natural resources
remained strong. The Kansas City, Dallas, and San Francisco Districts
reported a shift from natural gas to oil exploration and production due
to low natural gas prices and growing demand for oil. In the Cleveland
District, leasing activity in the Utica shale is expanding. Cleveland
and St. Louis noted that the production of coal has slowed over the past
few months. The mining sector is expanding in San Francisco due to high
prices for a variety of precious metals, and iron ore mines in the
Minneapolis District continued to operate near capacity. Contacts in
Kansas City reported a shortage of engineers and experienced technical
support for oil and gas drilling.

Employment, Wages, and Prices

Hiring was steady or showed a modest increase in the Boston, New
York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Dallas, and
San Francisco Districts. Industries reporting some employment growth
included manufacturing, freight transport, professional business
services, and information technology. A preference for part-time and
temporary workers was seen in the Richmond and Atlanta Districts.
Atlanta noted that temporary workers were being utilized in order to
contain costs and retain flexibility, while some employers in Richmond
prefer temporary workers due to uncertainty about future demand. Some
employers in the Boston, Cleveland, Atlanta, Chicago, Kansas City, and
Dallas Districts reported having difficulty finding qualified workers,
especially for certain high-skilled positions. Contacts in Philadelphia
and Cleveland noted that new federal regulations are exacerbating a
truck-driver shortage. New York commented that employers are planning to
step up hiring activity in the months ahead. Boston, Richmond, and
Atlanta said that employers in their Districts are cautious and need to
see more robust growth before they expand their permanent payrolls

Wage pressures were characterized as contained or modest among
reporting Districts. Contacts in Chicago, Dallas, and San Francisco
noted some upward pressure on wages for skilled jobs, especially in
manufacturing and information technology. In the Minneapolis District,
strong oil-drilling and production activity continued to bid up pay.
Transportation contacts in Cleveland noted some wage pressure due to a
tightening of the driver pool. And medical benefits continue to put
pressure on labor costs in Philadelphia.

Overall price inflation was modest in most Districts. However,
contacts in the Cleveland, Richmond, Atlanta, Chicago, Kansas City, and
Dallas Districts cited rising transportation costs due to higher fuel
prices. Minneapolis and Dallas noted that airlines have raised their
fares to offset higher fuel costs. Richmond reported that rising fuel
costs were a serious problem for both land and ocean shippers, while
intermodal transportation firms in Dallas said that they had increased
prices in response to higher fuel costs. In Atlanta, higher
transportation costs were passed through to consumers without much
difficulty. In contrast, contacts in Cleveland, Chicago, and San
Francisco said it was difficult to pass through higher costs to
consumers. Input costs for manufacturers in Boston, Cleveland, and
Kansas City rose somewhat, but with little pass-through. Price pressures
have eased somewhat for manufacturing firms in Philadelphia. Higher
prices for construction materials narrowed profit margins for
contractors in Kansas City.

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