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

Consumer Spending and Tourism

Retail spending was flat to moderately positive in most Districts,
with the exception of the Richmond and Atlanta Districts, which noted
declining traffic and sales. Contacts in the Kansas City District noted
sales were stronger than expected; back-to-school spending boosted sales
in the Philadelphia and Dallas Districts. Retail spending grew modestly
in the Minneapolis and San Francisco Districts, and was flat in the
Cleveland, Chicago, and St. Louis Districts. Retailers said consumers
are slowly regaining confidence, but remain price-conscious and were
largely limiting purchases to necessities and nondiscretionary items.
There were reports, however, of a pickup in sales of moderately priced
household goods in the Philadelphia, Dallas, and San Francisco
Districts, and gains in apparel sales were reported in the Atlanta and
Chicago Districts. Inventories were at desired levels. Looking ahead,
retailers in several Districts expected modest sales growth through
year-end. In particular, some contacts in New York planned to add more
holiday staff than last year.

Most Districts reported that sales of new vehicles held steady or
rose during the reporting period. Sales of used vehicles were strong as
well. Inventories remained tight, particularly for popular vehicles.
Used car prices rose, reflective of solid demand and lean inventories.
Respondents’ outlooks were for slight growth in sales through year-end.

Reports from most Districts pointed to continued improvement in
travel and tourist activity. The Richmond District reported that tourist
activity strengthened, and contacts in San Francisco noted that growth
in business travel and convention activity led to rising visitor counts
and hotel occupancy rates. Hotel occupancy for popular tourist
destinations in the Minneapolis and Kansas City Districts also rose
during the reporting period and was above year-ago levels. New York’s
report noted that hotel occupancy rates remained high in Manhattan, but
October bookings were somewhat weaker than expected. Atlanta noted that
tourist activity in some areas was still being affected by the Gulf oil
spill, but losses incurred in these areas were offset by increased
activity in Northeast Florida, Georgia, and Tennessee and respondents’
outlooks for the remainder of the year were positive. Airline traffic
was stable to slightly down according to the Dallas District, but
conditions were much better than a year earlier thanks to strength in
business travel. Restaurants and food service contacts in the Kansas
City and San Francisco Districts also noted slight increases in
activity.

Real Estate and Construction

Housing markets remained weak. Most District Beige Book reports
suggested overall home sales were sluggish or declining and were below
year-ago levels. There were scattered reports of some improvement in
sales in a few Districts, however. Philadelphia noted an increase in
sales of existing homes, and Richmond, Kansas City, and Dallas reported
upticks in sales of higher-priced homes. Sales reports were mixed in the
St. Louis and Minneapolis Districts, with increases in some metro areas
and declines in others. Home inventories were elevated or rising
according to most District reports. Home prices were generally stable
since the last report, although Kansas City noted a decrease in prices,
and

New York and Minneapolis reported declines in some metros.
Homebuilders in the Atlanta District reported downward price pressure
and expressed concern about rising foreclosures and bank-owned
properties coming to market.

Single-family construction activity was at very low levels, but had
improved somewhat in the Chicago, St. Louis, and Kansas City Districts.
Atlanta reported a softening of construction activity overall, and
Minneapolis said single-family building activity was mixed across
metros. Builders in the Dallas District said they had pulled back on
starts considerably after the run-up earlier in the year.

Respondents’ outlooks suggested sales and construction would remain
subdued through year-end. There were some reports that tighter credit
standards for buyers and small builders, along with general economic
uncertainty, were stalling activity.

Conditions in the commercial real estate sector remained subdued.
Reports suggested rental rates continued to decline for most commercial
property types. The one exception was the apartment sector, where higher
leasing activity led to fewer concessions, most notably in Manhattan.
Office, industrial and retail rental markets remained weak, although
there were a few reports of slight increases in leasing activity in the
Richmond, Chicago and Dallas Districts. Commercial property sales were
low overall, but contacts in the Chicago and Dallas Districts said
investment demand for distressed commercial properties remained strong.
Given lackluster demand for commercial space, nonresidential
construction activity was limited to mostly public projects, according
to District reports. Industry contacts appeared to believe that the
commercial real estate and construction sectors would remain weak for
some time.

Banking and Finance

Lending activity was stable at low levels across most Districts,
but there were some reports that demand picked up slightly. The Richmond
and Dallas District reports noted increased lending activity, and
Chicago said credit conditions continued to improve in the District.
Reports from Richmond and Dallas suggested that competition for quality
loans had picked up. Some contacts noted there was pressure to price
loans slightly more aggressively.

Demand for commercial and industrial loans remained weak as
businesses continued to postpone capital spending plans because of
economic and public policy uncertainties. However, merger and
acquisition lending picked up in a few Districts. Commercial real estate
lending remained subdued and loan standards were still tight.

On the consumer side, lending was sluggish, but there were
scattered reports of improvement. Contacts in the Cleveland and Dallas
Districts reported growth in auto loans. Residential mortgage lending
and refinancing activity increased in several Districts, and San
Francisco reported an increase in demand for nonconforming mortgage
loans.

Credit quality changed little on balance. New York reported a
decrease in delinquency rates on consumer loans, however, and overall
quality improved in the Philadelphia and Richmond Districts, according
to reports.

-more- (2 of 3)

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

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