WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Fourth District, published
Wednesday:

Consumer Spending.

Retailers reported little change in sales during May on a
month-over-month basis, but sales were higher relative to year-ago
levels. Increased revenues were seen across retail categories. Two of
our contacts noted that the warm winter weather did not negatively
impact consumer spending during the second quarter. Other respondents
reported that the rate of growth in purchases of luxury goods has
decelerated during the past couple of months. Retailers anticipate that
revenues during the third quarter will be above prior-year levels,
mainly in the single digits. Vendor prices were fairly stable. Increases
were attributed to higher costs for off-shore labor. Little change was
noted in store prices. Inventories continued to rise modestly, but they
were described as manageable. Capital spending for the year remains on
target. No hiring is anticipated, except at new stores, and wage
pressures are contained.

Auto dealers described new-vehicle purchases as steady during the
past six weeks, when compared to earlier in the second quarter. Any
slowdowns were attributed to seasonal factors or a poor inventory mix,
although most dealers are satisfied with their inventory positions.
Volume was higher on a year-over-year basis. Dealers reported that sales
of fuel-efficient vehicles and trucks are doing particularly well.
Leasing continued to grow in popularity. The outlook by dealers for the
remainder of 2012 is cautiously optimistic, with many expecting that
total sales for the year will equal or be slightly above 2011 levels.
Purchases of used vehicles were fairly steady on a year-over-year basis,
although some dealers were unhappy with the quality of their inventory.
Hiring for sales and service positions was at a very slow pace.
Difficulty in finding qualified service technicians has resulted in some
wage pressure.

Banking.

Bankers reported some easing in demand for business credit.
Interest rates remain competitive, especially for refinancings. Loan
requests were broad based, with the primary drivers being healthcare,
multifamily construction, and shale-gas-related businesses. Little
change in consumer credit was noted. Products in highest demand were
auto loans (direct and indirect) and home equity lines of credit.
Consumer credit pricing trended down slightly. In the residential
mortgage market, demand was described as stable to very strong. A high
percentage of applicants were looking to refinance, although a few
contacts said that they are beginning to see a shift in applications
from refinancing to new purchase. Two bankers reported some moderate
loosening of auto lending guidelines, otherwise no changes were made to
loan application standards. Delinquencies were steady or declined and a
few of our respondents cited a drop in credit card delinquencies. Core
deposits rose; consumers continued to transition from time-deposit
accounts to transaction accounts. One banker reported a moderate
reduction in the size of his workforce, while another said that his bank
is considering a staff reduction due to the low interest rate
environment.

Energy.

Conventional oil and natural gas production was stable, with little
change expected in the upcoming weeks. Well-head prices for natural gas
remain at very low levels, while crude prices dropped slightly.
Permitting in the Utica shale region of Ohio expanded. The number of
Utica permits issued by the Ohio Department of Natural Resources during
the first half of 2012 equaled the number issued for all of 2011.
Drilling in the Utica shale has picked up, mainly by large, out-of-state
companies. Coal production this year is expected to fall below 2011
levels due primarily to reduced demand from electric utilities. Spot
prices for metallurgical and steam coals declined further. Production
equipment and materials prices were flat, and capital outlays were at
projected levels. Significant layoffs were announced by one coal
producer due to the idling of some of its mining operations. Otherwise,
little change was seen in energy payrolls.

Transportation.

Freight transport volume was flat or moved slightly lower during
May on a month-over-month basis. Sectors driving demand included energy
and transportation along with seasonal products. The outlook for the
remainder of 2012 remains positive, but most respondents do not expect
that growth will be as strong as they had predicted earlier in the year.
Costs associated with truck maintenance and diesel fuel prices continued
to stabilize. Capital spending for 2012 remains on plan. Outlays are
allocated for the replacement of aging units and adding capacity.
However, some slowing in spending might occur due to concerns about
economic growth and industry consolidation. One contact noted that he is
finalizing plans for a terminal expansion in the eastern part of the
District. Companies are hiring for replacement and capacity expansion.
Wage pressure exists due to a tightening of the driver pool.

(2 of 2)

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]