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

Banking and Financial Services

Reports on credit activity were mixed across Federal Reserve
Districts. Overall, loan demand was reported as stable in San Francisco,
mixed in New York, steady to slightly softer in Kansas City, weaker in
St. Louis and Dallas, and slowly improving in Philadelphia and Richmond.
Demand for consumer loans declined in the New York, Cleveland, St.
Louis, Kansas City, and San Francisco Districts. By contrast, consumer
lending increased in the Dallas District, and exceeded expectations in
the Chicago District. Bankers in Philadelphia, Cleveland, and Richmond
anticipate consumer lending to expand in 2011. Demand for commercial and
industrial loans was flat in New York, Kansas City, and San Francisco.
Lenders in the New York, Cleveland, Minneapolis, Kansas City, and San
Francisco Districts noted a drop in residential mortgage refinancing
owing to the recent rise in interest rates, whereas Richmond reported
strong demand for home refinancing. The Cleveland and Richmond Districts
observed a pick-up in auto lending. Demand for residential real estate
loans eased in New York and Kansas City, remained weak in Cleveland and
Dallas, but increased in the Richmond District. Real estate lending
declined in the St. Louis District. Lending in the commercial mortgage
category increased in New York, was unchanged in Kansas City, and was
weak in Dallas, with the exception of multifamily. Most Districts
reporting on credit quality described it as improving, while bankers in
the Cleveland District said that quality remained stable or edged up
slightly. Reports on credit standards were mixed in New York, while
standards were said to have eased somewhat in Atlanta, remained
restrictive in San Francisco, and held steady in Kansas City.
Delinquency rates were flat or trending down in Cleveland, while
delinquency rates in the New York District rose for commercial
mortgages, decreased in the consumer lending category, and remained
unchanged for all other loans. Total deposits rose in the Cleveland and
St. Louis Districts and were stable in the Kansas City District.

Agriculture and Natural Resources

Unfavorable weather conditions damped agricultural production in
some areas. The Dallas District reported that drought negatively
affected range conditions by adding to costs of feeding livestock, while
Atlanta cited the challenges prolonged drought presented to fruit
growers. The Kansas City District indicated that dry weather could
affect winter wheat development. Large snow falls hampered some ranchers
in the Minneapolis District. However, agricultural demand generally
improved among reporting Districts, and output prices rose, especially
for corn, soybeans, wheat, cattle, and cotton.

The Kansas City, Dallas, and San Francisco Districts reported
increased drilling activity. Cleveland cited fairly stable oil
production, while the Atlanta District experienced the highest level of
oil production in more than six years during the fourth quarter of 2010.
Prices for crude oil and natural gas either stayed steady or slightly
increased in the Cleveland, Minneapolis, Kansas City, and Dallas
Districts. Cleveland reported steady coal production and prices, while
the St. Louis District saw coal production increase.

Prices and Labor Markets

Most District reports mentioned increasing prevalence of cost
pressures but only modest pass-through into final prices because of
competitive pressures. Philadelphia and San Francisco noted somewhat
reduced discounting in the retail sector during the holiday selling
season, while New York, Minneapolis, and Dallas indicated retail prices
were stable, Richmond said retail price increases had slowed, and
Chicago and Kansas City cited discounting or depressed retail margins.
For both retailers and manufacturers, increases in selling prices, if
occurring, were said to be selective. Specific markets or products
identified as experiencing high or rising prices included various food
products, steel and other metals, building materials, textiles,
chemicals, and petroleum-related products. Many Districts mentioned
concerns among business contacts that petroleum-related prices, already
above year-earlier levels, will continue rising in 2011. The
Philadelphia and Kansas City reports indicated that manufacturing firms
planned to attempt more price increases in 2011, while some
manufacturers in the Boston District were uncertain their price
increases would stick and the Chicago report projected only “limited and
gradual” pass-through.

Labor markets in most Districts appear to be firming somewhat, but
with virtually no upward pressure on wages. All District reports
indicated that employment levels are rising in at least some sectors,
generally by modest amounts; however, some employers in the New York,
St. Louis, and Minneapolis Districts also mentioned job cuts. Staffing
firms in the New York, Philadelphia, Cleveland, Richmond, Chicago, and
Dallas Districts gave positive reports; Cleveland, Richmond, and Atlanta
said some firms were raising work hours instead of or in addition to
hiring. The Boston, New York, Atlanta, Chicago, St. Louis, Minneapolis,
Kansas City, and San Francisco Districts indicated that business
contacts planned to continue or increase their pace of hiring in 2011.
Some employers in the Boston, Atlanta, and San Francisco Districts
expressed concern about added costs for healthcare; the Boston,
Cleveland, and Chicago Districts noted selected skill shortages in some
sectors. Overall wage pressures remained subdued; the Philadelphia
District reported “mostly steady wages,” Cleveland said “wage pressures
are contained,” Chicago indicated “wage pressures remained moderate,”
Minneapolis and Kansas City stated wage increases or wage pressure
“remained subdued,” and the Dallas and San Francisco reports described
wage pressures as “minimal” or “largely absent.”

(3 of 3)

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

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