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

Finance

Total outstanding loan volume at most of the Third District banks
contacted for this report has been flat since the last Beige Book, and
commercial bank lending officers said there has been little change in
loan balances in any credit category. Some bankers reported that demand
for business loans has increased, but demand for residential real estate
and consumer credit has eased. Commercial bank officers indicated that
credit quality has continued to improve slightly, but delinquencies and
defaults remain above historical norms.

Looking ahead, Third District bankers expect slow loan growth, at
best. They generally expect slight gains in business lending but
continued softness in consumer and residential mortgage lending. Bank
lending officers said credit standards remain more restrictive than they
had been in the past few years. For business borrowers, one banker said
this means a firm “must have stable relationships with customers and
vendors and show reasonable expectations about cash flow” to be
considered for new or renewed credit facilities.

Real Estate and Construction

Contacts in residential real estate markets reported sharp
decreases in sales of new and existing homes after the expiration of the
federal income tax credit for home purchases in April. The sales pace
continued to be slow in July, according to real estate agents and
builders. Residential real estate contacts expect sales during the rest
of the year to be weak. One agent, whose remarks echoed many others’,
commented that “There was a lot of front loading to take advantage of
the tax credit, and it remains to be seen how much activity there will
be going forward.” For both new and existing homes, contacts reported
little change in prices, although in some parts of the region where
foreclosures and short sales have been common, real estate agents said
existing house prices continued to be under downward pressure.

Nonresidential real estate firms indicated that vacancy rates in
commercial and industrial buildings have been nearly steady or have
moved up slightly in most parts of the Third District in the past few
months. Leasing activity has been flat, and effective rents have been
about level for Class A space but have moved down for Class B space.
Construction activity has been weak. Some contacts reported that
projects financed by federal stimulus funds are near completion or have
been finished and that there are no immediate prospects for more major
infrastructure construction. Commercial real estate contacts expect
market conditions to show little change in the second half of the year.
One said, “We’re stabilizing, but if companies cut space needs the
market will be dragged down.”

Services

Service-sector firms generally reported slight improvement since
the last Beige Book. Transportation companies reported increases in
freight volume, and some information technology service providers have
had slight recent increases in business. However, firms providing
services to the construction industry continued to report low levels of
activity. Looking ahead, most of the services firms contacted for this
report expect growth to be slow and irregular for the rest of the year.
One contact noted, “Demand from customers is coming only on a project
basis.”

Prices and Wages

Reports on input costs and output prices indicate little change
since the last Beige Book. Most of the manufacturing firms polled in
July reported no change from June in the costs of the commodities they
use or the products they make. However, producers of primary metals
raised prices. Home builders noted some increases in prices for lumber
and drywall. Retailers generally noted that both wholesale costs and
retail prices have been mostly steady. Across industries, firms reported
increases in health-care costs as they negotiate new insurance
contracts. Business firms in the region reported little or no upward
movement in wages, and most indicated that they have had no difficulty
in filling open positions. Employment agencies reported that client
companies have been cautious in adding employees or replacing those who
have left, although they have increased use of temporary workers on an
as-needed basis. Labor markets remain slack, according to employers and
employment agencies, who report that they generally get large numbers of
applicants for permanent positions; however, they also noted that they
get smaller numbers of applicants for temporary positions.

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

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