WASHINGTON (MNI) – The following is the second of three parts of
the text of the summary Federal Reserve’s Beige Book survey of Fed
districts, published Wednesday:

Consumer Spending and Tourism

Retail spending showed improvement across all Districts, with most
retailers reporting sales growth consistent with or ahead of plan for
the recent 2010 holiday season. Boston, Richmond, Atlanta, Chicago, and
Kansas City observed consumers positively reacting to promotions and
discounting, although Philadelphia and San Francisco reported that
retailers relied less heavily on discounting. Inclement weather,
including the late December blizzard, had some impact on sales in the
New York and Philadelphia Districts. New York , Cleveland, and Chicago
cited increased consumer confidence.

Automobile sales were either steady or up in eight Districts during
the reporting period, while New York stated that auto sales were “mixed
but generally at favorable levels” and Kansas City noted limited auto
sales but expected future improvement from additional incentives.
Philadelphia, Cleveland, and Dallas indicated that vehicle inventories
were at appropriate levels for the current sales rate. Cleveland
reported an increase in leasing activity, while the effect of rising
gasoline prices on sales of less fuel-efficient models was a concern
cited by some dealers in Philadelphia.

Tourism was characterized as positive or improved in the Richmond,
Atlanta, Minneapolis, Kansas City, and San Francisco Districts, while
New York described tourist activity as brisk. Contacts from the
Richmond, Kansas City, and Minneapolis Districts observed a strong start
to the winter ski season, although unfavorable weather conditions at the
end of December led to deteriorating conditions for winter activities in
some areas of the Minneapolis District. New York City’s Broadway
theaters reported increased attendance and revenue compared with the
2009 holiday season. Occupancy rose in the Atlanta and San Francisco
Districts’ major hotel markets. Room rates continued to run ahead of
comparable 2009 levels in the New York and the Kansas City Districts,
although rates have fallen in Kansas City since the last survey. Atlanta
and San Francisco noted rising business travel.

Nonfinancial Services

Activity was said to be steady to increasing among Districts
reporting on nonfinancial services. Providers of information technology
services saw increases in sales in the Kansas City and San Francisco
Districts. Advertising and consulting contacts in the Boston District
reported significant growth in demand. In the Dallas District, legal
firms noted an uptick in demand for services, while accounting firms
reported seasonal slowness. Reports from the healthcare sector were
mixed; St. Louis and Minneapolis reported ongoing increases in demand
for healthcare workers, while San Francisco indicated a slight weakening
in demand for healthcare services and Richmond reported little change.
Demand for staffing services remained on an upward trend, with increases
reported by New York, Philadelphia, Richmond, and Chicago. In addition,
an employment-agency contact in the New York District observed increased
demand for employees in the legal and financial services sectors, while
the Dallas District noted strong, steady demand for workers in the
professional, technical, healthcare, and finance fields. Reports from
the transportation services sector were mixed, with increased demand
reported by trucking firms and airports in the Richmond District, and
slower overall activity in the Kansas City District. Freight companies
in the Cleveland District noted stable volumes over the past six weeks,
and contacts in the Atlanta District reported moderating freight volumes
after significant increases in earlier 2010 reporting periods.

Real Estate and Construction

Activity in residential real estate and new home construction
remained slow across all Districts. A majority of the Districts,
including Boston, New York, Cleveland, Atlanta, Chicago, Minneapolis,
Dallas, and San Francisco characterized local housing markets as weak
and sluggish with little change from the previous reporting period.
Kansas City noted further weakening, while Richmond received reports of
both flat activity and further declines. The St. Louis District saw
additional declines in existing home sales, but also cited increased new
home construction permits. All Districts attributed slumping activity to
concerns about the pace of economic recovery, especially in employment,
while the Philadelphia, Atlanta, and Chicago Districts mentioned
difficulty obtaining credit as another constraint on demand. High levels
of existing home inventories continued to damp the pace of new home
construction in most Districts reporting on construction, although
Boston, Richmond, Dallas, and San Francisco mentioned pick-ups in
multifamily construction within their Districts. Home prices generally
declined or held steady in the New York, Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, Kansas City, Minneapolis, and San Francisco
Districts; the New York, Atlanta, Chicago, and San Francisco Districts
mentioned distressed properties placing downward pressure on prices.
Boston reported rising median home prices across most states in the
District, but contacts attributed those increases to relatively higher
sales of more expensive properties rather than a general upward movement
in home prices. Outlooks for residential real estate in the coming year
were mixed, with contacts in most Districts described as expecting
continued weak conditions.

Commercial real estate markets displayed mixed results across the
Districts again this reporting period, as leasing markets exhibited
increasing signs of recovery and nonresidential construction remained
weak. Leasing activity increased modestly in the Richmond, Chicago,
Minneapolis, and Kansas City Districts and showed tentative improvement
in the Dallas District. Vacancy rates, while quite high across the
country, fell marginally in the Kansas City District and in New York
City’s office market. Leasing market fundamentals held roughly steady in
the Boston, Philadelphia, and San Francisco Districts. Commercial
construction activity was described as very limited across most
Districts, with the bulk of new activity coming from projects related to
healthcare, public infrastructure, and multifamily housing. Contacts in
most Districts expected modest improvements in commercial leasing in
2011, although the outlook for construction was mixed and some Districts
noted rising costs as a concern.

-more-

(2 of 3)

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

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