WASHINGTON (MNI) – The following is the first part of the text of
the Dallas section of the Federal Reserve’s Beige Book report on
current financial conditions released Wednesday:

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy continued to expand at a modest pace
since the last report. Manufacturing activity was mixed. Service sector
activity held mostly steady, although retailers noted a recent pick-up
in sales. There were some signs of improvement in the housing sector,
and apartment demand remained brisk. Office and industrial leasing
activity continued to increase, but commercial real estate investment
activity fell. Loan demand was mostly unchanged, according to financial
contacts. The energy sector continued to expand at a strong pace, while
agricultural conditions deteriorated further. Many responding firms
across industries noted their outlooks were less optimistic, reflecting
uncertainty about the U.S. and global economies.

Prices

Price pressures eased slightly since the last report. Most firms
said input prices were unchanged or down, although retailers noted some
increases in apparel and jewelry prices. Raw materials prices were flat
or down. The exception was food producers who noted increased prices for
some inputs. Contacts in the agricultural sector said commodity prices
moved down since the last report. The price of WTI held between $80 and
$90 per barrel for most of the survey period, but slipped under $80 by
early October. As the driving season ended, the price of on-highway
diesel and gasoline fell by 11 and 16 cents per gallon, respectively.

Labor Market

Employment levels held steady at most responding firms, although
there were several reports of slight hiring activity. Staffing firms
continued to note steady demand at high levels. Most primary metals
manufacturers reported increases in payrolls and some continue to look
for additional workers. Scattered reports of hiring came from contacts
in the legal, auto sales, airline and transportation manufacturing
industries. Contacts in food manufacturing and financial services said
hiring activity had abated. Wage pressures remained minimal, although
upward pressure was noted by select retail, lumber and transportation
manufacturing firms.

Manufacturing

Reports were mixed among construction-related firms, but most
contacts described demand as steady during the reporting period. Several
responding firms said ongoing public projects were buoying activity.
Fabricated metals firms noted a slight pickup in demand and two lumber
producers noted a pickup believed to be due to home improvement projects
and demand from homebuilders. Constructionrelated outlooks were mostly
unchanged, with a slow recovery expected. Respondents in high-tech
manufacturing said that sales growth remained positive but continued to
slow and new orders declined. Demand weakened across consumer and
business markets and throughout most regions of the world. Producers of
consumer electronics are reportedly very cautious about demand over the
holidays and into the first half of next year, and have reduced their
orders for semiconductors. Because of the decline in new orders,
respondents in the high-tech sector expect sales to weaken over the next
six months.

Reports from paper manufacturers were mixed. Box producers noted
orders from the food and beverage industry had fallen, but demand from
retailers had picked up. One paper firm said strong demand was leading
to lower inventories. Outlooks were mostly downbeat, due to fluctuations
in the stock market and speculation about another recession. Non-defense
transportation manufacturers said demand held steady at pretty good
levels, and is up significantly from a year ago. Responding firms were
cautiously optimistic in their outlooks, noting troubles at the national
level had not impacted them yet. Food producers said sales were flat
since the last report, and outlooks were positive, although firms were
not hiring because of concerns about current U.S. economic conditions.

Petrochemical demand weakened in September. Ethylene spot prices
fell despite two large plants shutting down. Domestic demand for
polyethylene is weak, and the strong dollar has cut off exports to Asia
and Europe. Exports to Latin America also weakened as Asian producers
offered prices low enough to displace U.S. exports. Refiners said demand
for refined products fell slightly as summer ended. Margins remain
strong, but have narrowed.

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

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