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

Activity in residential real estate markets declined further. Most
District reports highlighted evidence of very low or declining home
sales, which many attributed to a sustained lull following the
expiration of the homebuyer tax credit at the end of June. Some
Districts, such as New York and Dallas, noted that the expiration of the
tax credit created especially weak conditions for lower-priced homes,
while others, including Philadelphia and Kansas City, identified the
high end of the market as the primary weak spot. Residential
construction activity declined in most areas in response to weak demand.
Cleveland, St. Louis, and Minneapolis were the exceptions to this
pattern of declining activity, with reports from their contacts
indicating that residential construction activity improved of late.
Inventories of available homes rose in general, although the
availability of new homes in Atlanta was held down by the slow pace of
new home construction. Price movements were mixed, with most Districts
reporting stability or declines of late; a few, notably Boston,
Minneapolis, and San Francisco, noted that prices rose in some areas
compared with the previous reporting period or last year. Richmond
reported that recent home sales were “dominated by foreclosure and short
sales,” and Chicago reported an increase in the supply of foreclosed
homes for sale.

Demand for commercial, industrial, and retail space generally
remained depressed. Vacancy rates stayed at elevated levels in general
and rose further in a few Districts, placing substantial downward
pressure on rents. Asking rents continued to decline in parts of the New
York and Kansas City Districts. High vacancies and negative absorption
held nonresidential construction activity to the bare minimum in most
Districts. A few Districts reported exceptions to weak conditions.
Cleveland noted improved construction activity for industrial use and
educational infrastructure; this raised overall activity above
year-earlier levels and prompted modest hiring by builders. Chicago
reported an increase in inquiries for commercial redevelopment and
rising construction activity for public projects, but Richmond reported
that state and local governments cut back on construction projects.

Banking and Finance

Lending activity was stable to down slightly on net. Most Districts
reported little or no change from existing low levels of commercial and
industrial lending, as businesses remained quite cautious about
expansion plans. Dallas and San Francisco reported that overall lending
trailed off, with declines driven by weak business lending stemming in
large part from uncertainty about future economic conditions. Consumer
lending remained sluggish in general, with contacts in Philadelphia and
Richmond emphasizing the role of households’ ongoing efforts to reduce
their debt burdens. A recent flurry of refinancing activity spurred
increased demand for residential mortgages in the New York, Cleveland,
Chicago, and Kansas City Districts, but new-purchase mortgage
originations remained quite sluggish in general. A few Districts pointed
to increases in nonbank financing activity, including rising
availability of trade credit in Atlanta and further increases in venture
capital funding in San Francisco.

Lending standards were largely unchanged. However, New York
reported tighter standards in all lending categories, particularly for
commercial mortgages, and Kansas City reported that a few banks
tightened standards for commercial real estate loans. By contrast,
reports from Chicago indicated that credit availability and terms
loosened for business and consumer loans. Credit quality also changed
little on balance. Philadelphia, Chicago, and San Francisco noted modest
improvements in overall credit quality, while New York reported rising
delinquencies for all categories except consumer loans and Atlanta
reported an increase in business and household bankruptcies.

Agriculture and Natural Resources

Demand for agricultural products continued to expand, and producers
benefited from relatively tranquil supply conditions. Crops and
livestock generally sold well in Districts with extensive agricultural
sectors, including Chicago, Minneapolis, Kansas City, Dallas, and San
Francisco. Domestic growers have seen increased demand for grains and
other commodities as a result of shortages overseas. Growing conditions
were supportive of relatively high yields in most areas, although
volatile weather conditions held corn and soybean yields below the
record levels expected earlier in the season in the Chicago District.
Low moisture during parts of the growing season also undermined yields
for selected crops in the Richmond and St. Louis Districts, most notably
for corn.

Demand and extraction activity increased for producers of natural
resource products, including oil and other items used for energy output.
Rising global demand spurred expanded extraction activity for oil,
natural gas, and assorted minerals, as reported by Cleveland, Atlanta,
Minneapolis, Kansas City, Dallas, and San Francisco. In the Atlanta
District, oil production was barely affected by the Gulf oil spill,
although contacts noted lingering concerns about the longer-term
business impacts of the deepwater drilling moratorium and higher
liability insurance costs for oil extraction companies.

Prices and Wages

Upward price pressures were very limited during the reporting
period, with the exception of selected food commodities and industrial
materials. Philadelphia reported increases in the prices of primary
metals and wood products, Minneapolis pointed to higher prices for
copper and lead, and Dallas and San Francisco reported higher prices for
grain and selected other agricultural commodities. Atlanta reported that
commodity and transportation-related prices rose, but their contacts
indicated plans to absorb the increases into their margins rather than
passing them on to consumers. Chicago, Kansas City, and San Francisco
also noted limited pass-through of cost pressures to downstream prices.

Wage pressures remained modest overall. Of Districts commenting on
wages, most identified little or no upward pressures or increases.
Dallas reported that wage pressures were “generally nonexistent,” with
the exceptions of some airline and temporary workers. Hiring of
permanent employees was held down in part by employers’ reliance on
temporary and contract workers, as reported by Philadelphia and Atlanta,
although Boston noted that conversions from temporary to permanent staff
picked up. Contacts in the Boston, Chicago, and Kansas City Districts
noted skill mismatches between available jobs and the workers applying
for them, which caused a slight uptick in wage pressures for selected
jobs in a narrow set of industries. More generally, however, the reports
suggested ample supply of qualified applicants for open positions.

(2 of 2)

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

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