WASHINGTON (MNI) – The following is the first part of the text of
the Federal Reserve’s Fourth District assessment in Wednesday’s Beige
Book survey of regional economic conditions:

FOURTH DISTRICT – CLEVELAND

The economy in the Fourth District grew at a modest pace since our
last report. Manufacturers reported a small increase in production,
while activity in residential and nonresidential construction picked up
slightly. Many retailers and auto dealers characterized February sales
as good. Energy production was stable except for shale gas, where
activity expanded. Freight transport volume trended higher at a moderate
rate. And the demand for business and consumer credit improved slightly.

Hiring remains at a low level and was mainly limited to the
manufacturing and freight transport sectors. Staffing-firm
representatives reported that the number of job openings has increased,
especially for information technology and healthcare workers. Wage
pressures are largely contained. Prices were largely stable apart from
increases in petroleum-based products, metals, and some building
materials.

Manufacturing

Production at District factories showed a small increase during the
past six weeks, and a majority of manufacturers said that output was
above year-ago levels. However, several contacts reported that the boost
in new orders they had seen late last year is leveling off and they are
uncertain about sales to European customers. Some of our respondents
expressed a more cautious outlook than at the start of 2012, but they
are not expecting a significant weakening. Shipping volume by steel
producers and service centers was trending slightly higher. Demand is
being driven by the auto, energy, and industrial equipment markets.
Steel representatives are cautiously optimistic about second-quarter
shipments, and they expect the positive growth trend to continue.
District auto production showed a modest rise during February on a
month-over-month basis, while increasing substantially from prior-year
levels. Increases were attributed, in part, to the abatement of supply
chain issues.

Capacity utilization has returned to normal rates for the majority
of our contacts, while inventories were consistent with demand. Capital
budgets remain on track, with many manufacturers reporting that they
plan to increase outlays during the next several months. Input- cost
changes were mainly limited to rising prices for petroleum-based
products and metals. Only a few producers said that they are considering
raising product prices during the second quarter. Manufacturers
continued to hire, but at a modest pace. We heard reports about
difficulties recruiting professional and high-skilled production
workers. Wage pressures are contained. Several contacts said that they
need to allocate additional monies for pension plans due to low rates of
return.

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

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