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

Summary

Reports from the twelve Federal Reserve Districts suggested
continued growth in national economic activity during the reporting
period of mid-July through the end of August, but with widespread signs
of a deceleration compared with preceding periods. Economic growth at a
modest pace was the most common characterization of overall conditions,
as provided by the five western Districts of St. Louis, Minneapolis,
Kansas City, Dallas, and San Francisco. The reports from Boston and
Cleveland also pointed to positive developments or net improvements
compared with the previous reporting period. However, the remaining
Districts of New York, Philadelphia, Richmond, Atlanta, and Chicago all
highlighted mixed conditions or deceleration in overall economic
activity.

Consumer spending appeared to increase on balance despite continued
consumer caution that limited nonessential purchases, while activity in
the travel and tourism sector picked up relative to seasonal norms.
Activity was largely stable or up slightly for professional and other
nonfinancial services. Reports on manufacturing activity pointed to
further expansion, although the pace of growth eased according to
several Districts. Agricultural producers and extractors of natural
resources reported continued gains in demand and sales. Home sales
slowed further following an initial drop after the expiration of the
homebuyer tax credit at the end of June, prompting a slowdown in
construction activity as well. Demand for commercial real estate
remained quite weak but showed signs of stabilization in some areas.
Reports from financial institutions pointed to generally stable or
slightly lower loan demand and noted some modest improvements in credit
quality.

Upward price pressures remained quite limited for most categories
of final goods and services, despite higher prices for selected
commodities such as grains and some industrial materials. Wage pressures
also were limited, although a few Districts noted increased upward
pressures in a narrow set of sectors experiencing a mismatch between job
requirements and applicant skills.

Consumer Spending and Tourism

Reports on consumer spending were mixed but suggested a slight
increase on balance. Most Districts reported that non-automotive retail
sales rose compared with the previous reporting period or were above
their levels from 12 months earlier. By contrast, Atlanta reported a
decline in the level of sales, and Richmond noted that sales “sputtered”
in August, while New York and Dallas reported that growth in retail
sales slowed. Several Districts noted an emphasis on necessities and
lower-priced goods. Boston reported that back-to-school purchases were
focused on immediate needs; in Cleveland, consumers focused on
“value-priced seasonal items;” and in St. Louis, Kansas City, and San
Francisco, sales were relatively stronger for lower-priced items.
Spending on big-ticket items such as expensive consumer electronics was
weak according to Philadelphia, Richmond, and Dallas. Most Districts
also reported that sales of new automobiles and light trucks were
largely stable or up slightly during the reporting period, and contacts
were optimistic for stable sales or slight growth over the balance of
the year. A few reports indicated that inventories for various goods
remained near desired levels despite slower sales in some cases, as
retailers have been practicing very tight inventory management.

Reports from most Districts pointed to consistent gains in travel
and tourist activity, with pickups evident in the business and leisure
segments alike. New York reported strong tourist activity that kept
hotel occupancy rates high in Manhattan despite an increase in hotel
capacity this year, while Boston noted that travel and tourism activity
was “stronger than expected.” Several other Districts also reported
rising visitor counts and hotel occupancies, notably for popular tourist
destinations in the Richmond, Minneapolis, and San Francisco Districts,
although several pointed to continued softness in per-visitor spending.
Atlanta noted reduced tourist activity in areas of the Gulf Coast
affected by the oil spill but improvements over last year in unaffected
areas. Airline traffic was stable to up, with Boston pointing to an
expanded number of low-fare carriers.

Nonfinancial Services

Activity was largely stable or up slightly for professional and
other nonfinancial services. Providers of information technology (IT)
services such as computer software saw substantial revenue and sales
gains in the Boston and Kansas City Districts, with increased demand for
IT labor reported in Chicago as well. Demand for professional services
such as accounting held largely steady, with Minneapolis and Dallas
noting increases for selected types of consulting and legal services.
Conditions were mixed for providers of real estate services, as
heightened appraisal activity for refinancing purposes was offset by
depressed home sales and consequent limited needs for agents and
brokers. Demand for temporary staffing services remained on an upward
trend, with increases noted by Boston, Philadelphia, Richmond, and
Minneapolis, although Chicago pointed to a slight softening during the
reporting period. Reports from the health-care sector were mixed:
Boston, Cleveland, and Chicago reported ongoing increases in demand for
health-care workers, while Philadelphia indicated a flattening in demand
for health-care services and San Francisco noted a decline in the
frequency of elective procedures and routine tests. Demand for shipping
and transportation services generally expanded, although according to
Cleveland the pace of growth slowed and contacts there expect little
change from existing volumes in the near term.

Manufacturing

Manufacturing activity expanded further on balance, although the
pace of growth appeared to be slower than earlier in the year. Most
Districts reported further gains in production activity and sales across
a broad spectrum of manufacturing industries. However, New York,
Richmond, Atlanta, and Chicago noted that the overall pace of growth
slowed, while Philadelphia, Cleveland, and Kansas City reported that
demand softened compared with the previous reporting period. Recent
weakness was most notable for construction-related products, according
to reports from Cleveland, Richmond, Chicago, Dallas, and San Francisco.
By contrast, orders and activity edged up for makers of steel and other
metals in Cleveland, Chicago, and St. Louis, propelled largely by demand
from the transportation equipment industry. Activity among automobile
makers and parts suppliers rose further in Richmond and held steady in
Chicago, although it dropped temporarily in Cleveland as a result of
factory retooling.

Manufacturing activity for commercial aircraft was steady in the
Dallas and San Francisco Districts, although a contact in Boston
reported that the industry’s recovery has been slow. In the Boston and
San Francisco Districts, makers of semiconductors and other high-tech
products saw further sales gains, while Dallas noted that demand held
largely steady at existing high levels. Among nondurable products, food
processing stepped up in Philadelphia and San Francisco. Demand
conditions for paper products were mixed, with increased sales and
expansion plans noted in Minneapolis and St. Louis but flat to declining
sales identified in Dallas. Export demand was an important contributor
to healthy conditions in the manufacturing sector according to Boston
and Chicago, notably for heavy machinery and autos. Reports on capacity
utilization were mixed. Manufacturers of high-tech products have been
operating near maximum capacity of late, although this partly reflects a
substantial decline in industrywide capacity over the past three years,
as noted by Dallas. More generally, the majority of Cleveland’s
manufacturing contacts reported that capacity utilization remained below
pre-recession levels. Capital spending plans for manufacturers and firms
in other industries generally indicate little change or modest increases
in coming months, based on reports from the Boston, Philadelphia,
Cleveland, Chicago, Kansas City, and San Francisco Districts.

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

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