WASHINGTON (MNI) – The following is the third and final section of
the summary of the Federal Reserve’s Beige Book summary of economic
conditions in the 12 regional bank districts, published Wednesday:

Credit standards and credit quality were somewhat improved, on net,
since the last report. Chicago, St. Louis, and Kansas City noted that
credit standards on most types of loans were unchanged, and Dallas cited
a loosening of credit standards, which contributed to very competitive
loan pricing. Atlanta cited contacts who reported that underwriting
standards had become more restrictive and burdensome since its last
report, both in terms of credit scores and information requests. With
respect to loan quality, New York reported that delinquency rates
increased in the consumer and commercial and industrial segments but
held steady in the residential and commercial mortgage segments.
Philadelphia contacts cited moderate improvement. Cleveland and Richmond
noted improvements in delinquency rates across consumer and business
loan categories. Richmond added, however, that some contacts were
concerned that banks were increasing their risk exposure by making
longer-term loans in an effort to get higher yields. Kansas City and San
Francisco also mentioned moderate improvement in loan quality.

Agriculture and Natural Resources

Assessments of agricultural activity were mixed. Varying degrees of
drought conditions persisted in several Districts, while Hurricane
Sandy’s agricultural damage was minimal and localized mainly in coastal
areas. In the Atlanta District, much of Georgia experienced drought
conditions, while Chicago reported that corn and soybean production in
their District did not suffer as much from the drought as previously
expected. Correspondingly, Minneapolis indicated that their District
crop producers remained in mostly good shape, despite this year’s
drought. Low soil-moisture levels in the Kansas City District hindered
winter wheat emergence, raising concerns that persistent drought could
strain U.S. crop production, keep crop and feed prices high, and force
further livestock herd liquidations. However, Richmond stated that most
farmers in Virginia were relieved that Hurricane Sandy brought much
needed rain without significant damage to the corn and soybeans still in
the fields. San Francisco noted that production activity and sales of
most crop and livestock products have been growing at a solid pace, as
had investment spending on new production equipment. Moreover, the St.
Louis District reported that harvest completion rates were considerably
higher than the five-year average there.

Activity in the energy industry was generally mixed since the last
report. Coal production was above year-ago levels in the St. Louis
District but was lower in the Cleveland and Kansas City Districts. More
electricity was being generated from natural gas in Kansas City. In the
Atlanta District, Hurricane Sandy’s damage to refineries and
infrastructure in the Northeast caused southeastern regional refiners to
increase production and transportation of oil products to supply
affected areas. Minneapolis reported that oil and gas production
remained at record levels but noted that exploration activity was flat
to down in some areas since our last report. Similarly, extraction
activity in the San Francisco District expanded on balance for petroleum
and natural gas, although the number of rigs used for natural gas
extraction fell as producers shifted their activities toward
higher-valued oil formations. The number of active oil rigs also fell in
the Kansas City and Dallas Districts. Minneapolis mentioned that iron
mines in northern Minnesota remained busy, although production fell
slightly compared to recent months.

Employment, Wages, and Prices

Modest improvements in hiring activity were reported by most
Districts. Labor markets were generally described as improving modestly
by Boston, Atlanta, Chicago, Minneapolis, and Dallas. Staffing firms,
according to Boston and Cleveland, experienced improved business
conditions. However, Richmond reported that labor markets in general
were weaker than in the last report, citing examples of soft demand and
an unwillingness of some manufacturers to hire long-term unemployed
workers. Contacts for Boston noted that demand for office and clerical
assistants and accountants remained weak, and Cleveland reported that
hiring across industries was generally sluggish except in autos. Atlanta
indicated that employment agencies were seeing a pickup in orders for
temporary help. Some large employers, however, announced plans to move
toward hiring more part-time, rather than full-time, employees. Chicago
reported that a number of firms were putting hiring on hold and had
delayed temp-to-perm conversion decisions until next year. With respect
to the upcoming holiday season, Cleveland reported that retailers were
planning to hire the same number of temporary workers as last year,
while Boston and Atlanta noted that some retailers were expecting to
hire more help over the holidays. Finally, contacts in a number of
Districts reported difficulties finding qualified workers in some
specialized occupations.

Wage pressures were generally characterized as “subdued” or
“contained” throughout much of the nation, according to the latest
District reports. Virtually every District described wage growth as
modest at best. Contacts in the Atlanta District attributed flatness in
wages to the large number of applicants for newly posted positions.
Richmond reported that manufacturing and retail wage growth edged up,
but wage growth slowed at non-retail firms. In addition, non-labor costs
were increasing in the Chicago District, mostly due to health-care
costs. St. Louis cited stable wages but added that non-labor costs in
manufacturing were rising. Minneapolis noted pockets of stronger wage
growth in some geographical areas, such as North Dakota where oil
drilling was pushing up demand for workers. However, even this pressure
was easing in recent weeks. Kansas City noted strengthening in wage
growth among specialized positions in transportation and high-tech
firms. Finally, San Francisco noted that limited hiring and abundant
labor supply were holding down wage and compensation increases. However,
San Francisco added that a few cases of wage pressures were occurring
among truck drivers, health-care workers, and entry level positions in
areas with low unemployment.

As with wages, price pressures changed little from the modest pace
that was reported in the last assessment. Almost every District
described price growth as modest, although examples of higher price
growth were occasionally cited. For example, Atlanta noted that, even
though overall input price increases had eased, firms were being
challenged by higher energy and crop-related input prices and by rising
health-care costs. Cleveland, Chicago, Minneapolis, Kansas City, and San
Francisco all reported increasing prices of construction-related
materials, and Chicago and Minneapolis also cited increases in metals
prices. In addition, Kansas City remarked on rising prices in
construction materials and manufacturing raw materials in general.
Richmond reported increasing raw materials prices and slower increases
in finished goods prices. Retail prices in general eased in the Richmond
District, and Chicago noted that retail food prices eased, except for
meats. According to contacts in the Kansas City District, however,
retail prices edged higher. In the Richmond District, the pace of
increases in services prices also moved up.

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** MNI Washington Bureau: 202-371-2121 **

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