Beige Book: Full Text

The following is the full text of the Beige Book released by the Federal Reserve on July 23, 2008 and based on information collected on or before July 14, 2008:

Reports from the twelve Federal Reserve Districts suggest that the pace of economic activity slowed somewhat since the last report. Five eastern Districts noted a weakening or softening in their overall economies, while Chicago characterized its economy as sluggish and Kansas City noted a moderation in growth. St. Louis said activity was stable and San Francisco reported little or no growth. Cleveland and Minneapolis reported slight increases in economic activity, while Dallas described growth as steady and moderate.

Consumer spending was reported as sluggish or slowing in nearly all Districts, although tax rebate checks boosted sales for some items. Tourist activity was mixed, with residents in several Districts choosing to vacation closer to home due to high gasoline prices. The demand for services was also mixed across Districts, with strength in the IT and health care industries offsetting some weakness in other service sectors. Manufacturing activity declined in many Districts, although demand for exports remained generally high. Residential real estate markets declined or were still weak across most of the country. Commercial real estate activity also slowed or remained sluggish in a majority of Districts, although a few Districts noted slight improvement. In banking, loan growth was generally reported to be restrained, with residential real estate lending and consumer lending showing more weakness than commercial lending. Districts reporting on agricultural activity said conditions were mixed, based largely on how June precipitation affected them. Districts reporting on the energy sector said it continued to strengthen.

All reporting Districts characterized overall price pressures as elevated or increasing. Input prices continued to rise, particularly for fuel, other petroleum-based materials, metals, food, and chemicals. Retail price inflation varied across the country, with some Districts reporting increases but others noting some stability, at least for the present. Wage pressures were generally limited in most Districts, as labor market demand was soft except for highly skilled workers and in the energy sector.

Consumer Spending and Tourism
Consumer spending was reported as mixed, weak, or slowing in nearly all Districts since the last report, although tax rebate checks boosted sales for some items, especially electronics. Cleveland was an exception to the trend, characterizing sales as stable to improving outside of the grocery sector. Sales at discount stores were also reported as growing in the Philadelphia, Richmond, St. Louis, Dallas, and San Francisco Districts, and New York reported brisk sales in New York City. However, sales at most other types of stores, especially for discretionary and housing-related items, were typically characterized as weak or falling, and restaurant sales were also reported as slow in the Philadelphia and Minneapolis Districts. The outlook for retail activity was also generally downbeat, with expectations "subdued" among Atlanta District contacts and "grim" among Dallas District contacts. Despite sluggish overall sales, inventories were reported as largely satisfactory in most Districts.

Reports on automobile sales were almost uniformly weak across Districts. Sales were especially poor for large vehicles such as trucks, SUVs, and some minivans. Indeed, auto dealers in the San Francisco District were increasingly reluctant to accept trade-ins of trucks and SUVs due to a lack of a wholesale market for these vehicles. Demand for small fuel-efficient and foreign vehicles was reported to be solid or increasing in the Philadelphia, Cleveland, Chicago, Minneapolis, and Dallas Districts. Dallas reported that consumers were paying sticker prices for such vehicles, and that they were in short supply.

Tourist activity was mixed across Districts. Contacts in the Philadelphia and Chicago Districts reported weakness, and San Francisco said travel to Hawaii declined noticeably. Atlanta also noted increased hotel cancellations and shorter trip durations, although convention business remained strong. By contrast, tourist activity to mountain areas of the Richmond, Minneapolis, and Kansas City Districts was characterized as stronger, which some contacts attributed in part to more residents vacationing close to home due to high gasoline prices. New York also reported strong tourism activity in New York City, including for Broadway shows and at Manhattan hotels.

Nonfinancial Services
The demand for services was mixed among the various Districts, with strength in the IT and health care industries offsetting some weakness in other service sectors. Advertising and marketing firms in the Boston District experienced robust demand from the tourism and retail industries, and St. Louis reported the addition of two new call centers in the area. Dallas noted particularly strong demand for accounting, energy, engineering, and IT services. On the negative side, New York, Richmond, Minneapolis, and San Francisco reported services activity as mixed or decreasing. San Francisco noted "grim" conditions for real estate services such as title insurance, and some service firms in the New York District expressed caution about hiring due to ongoing turmoil in the financial industry. In transportation services, New York, Atlanta, and Dallas reported weaker activity due to higher fuel costs, while Cleveland said activity remained unchanged and Richmond indicated an increase in shipping volume. New York said fuel, as opposed to labor, was now the number one cost for trucking firms and that most surcharges were considered inadequate to defray the escalated costs. Cleveland reported that many trucking firms had reduced capital spending, with little change expected in coming months. Atlanta and Dallas noted a decline in auto and construction materials shipments. Most services contacts expected flat activity heading forward.

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