WASHINGTON (MNI) – The following is the second and final part of
the text of the summary of the Federal Reserve’s Beige Book survey
published Wednesday:

Real Estate and Construction. Residential real estate activity
improved since the last report. Most Districts noted an increase in home
sales and construction prior to the April 30th deadline for the
homebuyer tax credit, with contacts in many of these Districts also
indicating a corresponding slowing in activity in May. Tight credit, the
elevated inventory of homes available for sale, and the “shadow
inventory” of foreclosed properties on banks’ balance sheets held back
residential development in the New York, Cleveland, Atlanta, and Chicago
Districts. Commercial real estate activity generally remained weak.
Office, industrial, and retail vacancy rates continued to drift upward
in many Districts putting downward pressure on rents. However, lower
rents were said to have led to an increase in leasing activity in New
York, Philadelphia, Richmond, Kansas City, Dallas, and San Francisco.
The elevated inventory of existing properties for sale or rent continued
to weigh on new private nonresidential construction. However, stronger
industrial demand was noted in several Districts. Public construction
increased in Philadelphia, Cleveland, and Chicago, but slowed in
Minneapolis.

Banking and Finance. Financial activity was little changed on
balance from the previous report. Commercial and industrial lending by
banks remained weak in most Districts, although Philadelphia, Chicago,
Dallas, and San Francisco noted business loan demand was firming.
Philadelphia also indicated an increase in business lending by
non-depository financial companies, and New York reported that
underwriting and investment banking activity strengthened. Consumer
lending weakened in most Districts. In contrast, real estate lending
increased even though standards on these loans remained tighter than on
other loans, particularly for commercial mortgages. Chicago noted that
the secondary market for residential mortgages was beginning to improve,
and private equity investment in commercial properties increased in
Boston, Chicago, and Dallas. Loan quality was indicated to be
stabilizing or gradually improving in most Districts, but remained an
issue for banks with large exposures to real estate. Contacts in some
Districts cited concerns over the potential impact of the European
fiscal crisis on financial and business conditions, and reported a
corresponding increase in uncertainty and financial market volatility.

Agriculture and Natural Resources. Crop planting was generally
ahead of the seasonal norm, particularly in the Chicago, Minneapolis,
and Dallas Districts, although soybean planting was lagging in St. Louis
and Kansas City. Crop emergence was also ahead of the typical pace.
Precipitation conditions were generally positive, with the exception of
flooding in Tennessee and dryness in parts of the Richmond and Dallas
Districts. Prices for hogs, cattle, and cotton were higher, while prices
for grains, soybeans, and milk were roughly unchanged. Mining and energy
industry activity varied across Districts. According to contacts in the
Atlanta District, the Gulf oil spill had little immediate effect on oil
production, although it had damaged fishing operations.

Employment, Wages, and Prices. Labor market conditions improved
slightly with permanent employment levels edging up in most Districts.
In addition, many Districts again noted an increase in temporary hires,
with Boston and Dallas also indicating a pick up in
temporary-topermanent transitions. By industry, manufacturing was the
most often cited source of employment gains (both temporary and
permanent), and Cleveland, Minneapolis, and Dallas noted an increase in
the manufacturing workweek. Other sources of increased employment were
the biopharmaceutical industry in Boston, retail trade in Chicago, and
transportation in Dallas.

Wage pressures were limited, although San Francisco noted upward
pressure on employee benefit costs. Prices of final goods and services
were largely unchanged in most Districts as higher input costs were not
being passed along to customers and wage pressures continued to be
minimal. Steel prices in many Districts moved higher, as did lumber and
food prices, while energy prices generally declined. Several Districts
noted tighter commodity supply conditions, with Richmond and Kansas City
indicating an increase in supplier lead times and Boston and Atlanta
reporting supply chain capacity constraints. Transportation costs moved
up in the Philadelphia, Richmond, Atlanta, and San Francisco Districts,
but diesel fuel cost pressures eased in New York.

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

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