WASHINGTON (MNI) – The following is the first part of the text the
Dallas section of the Federal Reserve’s Beige Book report on current
financial conditions released Wednesday:

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy continued to grow at a moderate pace,
and outlooks were more positive than in the last report. Manufacturers
reported increased activity. Demand for business services was solid, and
activity in transportation services rose modestly. Housing and
commercial real estate markets continued to improve. Overall building
activity remained subdued, with the major exception being robust
multifamily construction activity. Contacts said retail sales growth was
tepid and automobile sales held steady. Financial services respondents
said overall loan demand edged up. Energy activity was strong, and
agricultural conditions improved. Employment levels were flat to up
slightly. Price and wage pressures were modest.

Prices

Contacts across most industries said prices held steady. The
exceptions were some producers of transportation equipment, fabricated
metals and food who noted slight increases in selling prices to
partially offset higher input costs. Airlines reported higher fares, and
shipping firms noted an increase in express package and freight delivery
rates.

The price of WTI was near $100 per barrel during the reporting
period. Natural gas prices fell from $3 per thousand cubic feet in early
January to near $2.50 in mid-February. Gasoline prices rose by about 22
cents per gallon over the past six weeks, and the price of diesel rose
by 7 cents. Prices of petrochemicals and plastics increased since the
last report.

Labor Market

Employment levels were unchanged at most responding firms but some
contacts noted increases. Staffing firms continued to report high levels
of demand. Oil services and machinery firms continued hiring at a rapid
pace, and slight employment increases came from some auto dealers,
airlines, and transportation, food and high-tech manufacturers.
Shortages of skilled workers continued to be reported, particularly for
the energy industry. Wage pressures remained minimal, although upward
pressure for certain positions such as auto mechanics and software
engineers was reported. Several firms said annual cost-of-living
adjustments took effect at the start of the year.

Manufacturing

Overall demand for construction-related materials improved, and
several contacts noted that orders were up from year-ago levels. Mild
winter weather, robust multifamily construction and booming oil field
activity provided a boost to some producers of lumber, stone, clay and
glass. Fabricated metals manufacturers noted a pick-up in growth since
the last report, in part due to government projects. Producers of
primary metals reported a broad-based increase in orders, and one
contact said they were adding a new manufacturing plant.
Construction-related outlooks were more positive than in the last
report, and several contacts expect a slight rebound in activity this
year. High-tech manufacturers said orders edged up moderately since the
last report. Demand for semiconductors and other electronic products
improved, largely due to a pickup in demand for automobiles, mobile
devices and cloud computing. In addition, one respondent noted that
retailers of electronic goods had been paring down inventories in the
second half of 2011 and that orders picked up as retailers ended the
inventory reduction. Most contacts expect a gradual improvement in
demand over the next three to six months.

Emergency vehicle, automobile and aviation equipment manufacturers
said demand was flat to up since the last report, and expectations are
for strong sales growth this year. Food producers noted an uptick in
orders from the prior report, largely due to stronger consumer demand.
Overall conditions in the paper products sector were mostly unchanged.

Petrochemicals producers reported several large planned and
unplanned outages at ethylene and polyethylene production facilities,
which led to a sharp increase in prices. Export demand for polyethylene
and caustic soda continued to trend up, while domestic PVC demand
remained weak due to low levels of housing construction and
infrastructure projects. Refiners noted weak demand for petroleum
products nationally, although refineries on the Gulf Coast were seeing
slightly higher margins than some other parts of the country. Contacts
noted Gulf Coast refineries were investing heavily on repairs and
maintenance during the current spring turnaround season. Retail Sales
Retailers said overall sales growth was tepid during the reporting
period, largely due to unseasonably warm weather. However, sales of
non-seasonal items like menswear and home furnishings remained strong.
Eleventh District sales trended roughly in-line with the nation over the
reporting period, according to three large retailers. Inventories were
at desired levels. Contacts noted that the retail environment had
improved, and expectations are for moderate sales growth this year.
Automobile sales held steady from the prior report. The used car market
remained tight. Vehicle inventories were somewhat lighter than normal.
Expectations are for moderate increases in new car sales this year.

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

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