WASHINGTON (MNI) – The following is the text of the summary of the
latest Beige Book survey of economic conditions, published Wednesday:

SUMMARY*

* Prepared at the Federal Reserve Bank of Chicago and based on
information collected on or before October 7, 2011.

Reports from the twelve Federal Reserve Districts indicate that
overall economic activity continued to expand in September, although
many Districts described the pace of growth as “modest” or “slight” and
contacts generally noted weaker or less certain outlooks for business
conditions. The reports suggest that consumer spending was up slightly
in most Districts, with auto sales and tourism leading the way in
several of them. Business spending increased somewhat, particularly for
construction and mining equipment and auto dealer inventories, but many
Districts noted restraint in hiring and capital spending plans. By
sector, manufacturing and transportation activity was reported to have
increased on balance. A few Districts also reported slight improvements
in construction and real estate activity; nonetheless, overall
conditions for both residential and commercial real estate remained
weak. Districts reporting on nonfinancial services cited mixed results
with activity varying widely by industry. Loan demand by and large moved
lower, with the exception of an increase in mortgage refinancing in many
Districts. Crop conditions at harvest were generally less favorable than
a year ago. In contrast, energy and mining activity continued to
strengthen in several Districts, with the exception of some
storm-related slowdowns in the Gulf of Mexico. Cost pressures eased in
the majority of Districts, though there was some further pass-through of
earlier increases to downstream prices. Wage pressures remained subdued
outside of a few exceptions in which firms noted having difficulty
finding appropriately skilled workers.

Consumer Spending and Tourism. Consumer spending was up slightly in
September. The majority of Districts reported increases in auto sales,
with the largest improvements in San Francisco and New York. Several
Districts noted a greater availability of new vehicles as the supply
disruptions that had plagued auto dealerships in the aftermath of the
Japanese disaster subsided. Contacts in the Cleveland, New York,
Philadelphia, and Dallas Districts indicated that demand for used cars
remained high and that some models were still scarce. A large number of
Districts reported that non-auto retail sales were flat to down in
September; but a few, such as Philadelphia, Richmond, and Dallas noted
an increase in customer traffic late in the month and into early
October. Back-to-school sales were described as being fairly strong in
New York and satisfactory in Richmond. In addition, Boston, Chicago,
Kansas City, and Dallas cited some strength in the sales of big-ticket
or luxury items, while Minneapolis and Chicago noted that more consumers
were trading down to value products at grocery stores. Tourism was
generally higher in those Districts reporting on the sector. Contacts in
New York noted that, despite the negative impact of Hurricane Irene,
Broadway and hotel revenues continued to rise. Richmond reported
substantial damage from Hurricane Irene to some tourist destinations
that were subsequently forced to close for repairs, but tourism remained
vibrant in other areas. Boston, Atlanta, and Minneapolis also cited
increases in tourism, with hospitality contacts in Atlanta expecting a
robust holiday season. Tourism results were mixed across various
destinations in the San Francisco district.

Business Spending

Business spending increased somewhat from the previous report.
However, contacts in a number of Districts reported that a weaker and
more uncertain economic outlook had increased caution and was weighing
on future spending plans. Philadelphia, Richmond, and Chicago indicated
that many retailers were reluctant to build inventories ahead of the
holiday season, pointing to recent declines in consumer confidence. Auto
dealers were an exception, as they continued to replenish inventories
that ran low in the aftermath of the production disruptions caused by
the Japanese disaster. Capital spending continued as planned in most
Districts. Respondents in Cleveland, Atlanta, and Chicago noted
increased purchases of equipment in the manufacturing, mining, and
transportation industries. Boston and Minneapolis indicated that some
manufacturers planned to expand capacity either through mergers and
acquisitions or the building of additional facilities. Atlanta cited a
pick-up in corporate expansion and relocation interest, and Chicago
noted an increase in mergers and acquisitions activity among
middle-market firms.

Nonfinancial Services.

Reports regarding nonfinancial services were mixed in September.
Richmond noted slower overall activity, and St. Louis cited reduced
demand for telecommunications, media, and education services. Demand for
accounting and legal services was reported to have been unchanged in
both Dallas and San Francisco. On the positive side, contacts in St.
Louis reported that demand for business support services increased, and
Boston reported strong business conditions for economic consulting firms
involved with litigation work and advertising firms helping to market
financial services. In addition, San Francisco noted continued growth in
demand for technology services, Minneapolis noted an increase in
activity in software and engineering, and Philadelphia cited some growth
in logistics. Staffing at nonfinancial service-sector firms was reported
to have been up slightly in Richmond, but growth slowed in Chicago and
Philadelphia reported flat activity.

Manufacturing and Transportation

Contacts indicated that manufacturing and transportation activity
increased since the last report in most Districts. A large number of
Districts reported higher production of autos and other
transportation-related equipment. Cleveland, Atlanta, and Chicago noted
increases in auto production, and Boston, Richmond, Chicago, and St.
Louis all cited robust activity for auto suppliers. Dallas reported
healthy demand for nondefense transportation goods. Boston, Richmond,
Kansas City, and San Francisco indicated continued growth in commercial
aviation and aerospace manufacturing. Steel production rose in Cleveland
and Chicago, and in a number of Districts metal manufacturers’ new
orders also rose. Other areas of manufacturing were more mixed. The
Dallas report noted a decline in refining activity. However, both Dallas
and Atlanta continued to note robust oil and gas drilling activity, and
this activity was said to be propelling demand for related equipment
from suppliers in Chicago. Manufacturing of construction materials or
equipment was reported to have increased some in Philadelphia, Chicago,
and Dallas but remained weak in most other Districts. Growth in
high-tech manufacturing continued to be robust in Boston, but moderated
in Dallas and San Francisco. Respondents reported that food production
was up in Chicago, Minneapolis, and San Francisco, steady in Dallas, and
lower in Boston. Manufacturers of consumer products reported a softening
in orders in Richmond, Chicago, and Dallas, while new orders for apparel
increased in San Francisco. Freight traffic increased in Cleveland and
Atlanta, driven in large part by shipments of commodities, and Richmond
also noted that port activity for commodities continued to be robust.
However, Richmond also indicated that imports and exports, in particular
of consumer goods, were both somewhat soft during what is typically the
peak season for trade.

Real Estate and Construction

All twelve Districts reported that real estate and construction
activity was little changed on balance from the prior report.
Residential construction remained at low levels, particularly for
single-family homes. That said, Philadelphia, Cleveland, and Minneapolis
noted small increases in single-family construction, and construction of
multifamily dwellings continued to increase at a moderate pace in
Boston, Philadelphia, Cleveland, Kansas City, Dallas, and San Francisco.
Home sales remained weak overall, and home prices were reported to be
either flat or declining across all of the Districts. In contrast,
rental demand continued to rise in a number of Districts. Commercial
real estate conditions remained weak overall, although commercial
construction increased at a slow pace in most Districts. Boston,
Philadelphia, St. Louis and Cleveland cited some gains in demand for
construction of education, healthcare, and institutional-related
buildings, and New York reported an increase in hotel development.
Furthermore, Philadelphia, Cleveland, and Chicago noted an increase in
demand for manufacturing and distribution facilities. Vacancy rates
remained elevated, but Boston, Atlanta, Chicago, Minneapolis and Dallas
reported an increase in leasing activity and Philadelphia and San
Francisco indicated rising investor interest in well-leased office
space. Banking and Finance. Financial activity was reported to have
weakened some since the last report. Dallas noted that the improvement
in financial conditions had stalled, and Chicago indicated a further
tightening of credit conditions, particularly for financial firms. In
addition, New York reported noticeably weaker activity in the securities
industry.

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

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