Beige Book: Full Text

Manufacturing
Manufacturing activity declined or remained weak in most Districts, although Cleveland, St. Louis, and San Francisco reported stable or slightly increasing activity. Many Districts reported a decline in production of housing-related goods, such as construction equipment, wood products, home furnishings, and HVAC units. The Cleveland, Atlanta, Chicago, and St. Louis Districts all reported declines in auto manufacturing activity. However, St. Louis noted a slight rise in demand for parts of small and hybrid-type cars. An equipment producer in the Richmond District cited reduced sales due to interrupted shipments caused by higher gas prices and restrictive truck schedules. On the positive side, producers of energy equipment saw increased demand in several Districts, and Minneapolis noted a rise in orders for wind turbine parts. San Francisco said that food manufacturers continued to operate at or near peak capacity due to persistently high demand. Cleveland, Richmond, Chicago, and Kansas City reported continued high demand for exports. Dallas noted strong overseas sales of high-tech products in Asia, but cited weak demand in Western Europe. Some manufacturers in the Boston District cited examples of robust demand in foreign markets, while others said foreign demand growth may be slowing. Manufacturers in several Districts anticipated further factory weakness in the near future. While most Districts expected stable capital spending heading forward, a few noted manufacturers' plans to reevaluate based on current economic conditions.

Real Estate and Construction
Residential real estate markets declined or were still weak across most of the country. Slower home sales were reported in the Boston, Philadelphia, Richmond, Atlanta, and St. Louis Districts. Cleveland reported flat to declining sales, while sales remained sluggish in the Kansas City and New York Districts--especially at the high end--and were below year-ago levels in the Minneapolis District. New York also reported a drop in Manhattan condo and co-op transactions. Inventories of unsold homes or condos were reported as higher or excessive in several Districts, but Dallas noted a continued decline in inventories, especially at the low end. Home prices continued to decline in most Districts, and increased use of incentives and discounting was noted in several Districts. San Francisco noted particularly sharp declines in home prices in areas of California, Arizona, and Nevada that have experienced large increases in foreclosures. Atlanta said home prices dropped across the board. On the other hand, home prices were said to be holding up in the Dallas District and were little changed in the Kansas City District. Difficulties obtaining mortgage financing were reported in the New York and Chicago Districts. All Districts reporting on single-family construction said activity continued to decline, and builders in the Philadelphia District noted a rising number of cancellations. The decline in new construction accelerated in some areas of the Chicago District.

Commercial real estate activity weakened or remained sluggish in a majority of Districts, although Cleveland, Minneapolis, and Kansas City noted some improvement. Boston characterized sentiment in the sector as "decidedly morose," and industrial markets were especially weak in that District. Office market conditions in the Richmond District continued to weaken and were "bleak" in the Washington, DC area. Vacancy rates increased in the Philadelphia and Atlanta Districts, and were up noticeably in both Midtown and Downtown Manhattan, according to contacts in the New York District. Office rents remained steady in the Philadelphia District, and were little changed in the Boston District after taking concessions into account. More positively, contacts in the Minneapolis District noted rent increases and positive absorption in the Minneapolis-St. Paul area office market. Districts reporting on nonresidential construction generally noted sluggishness, which contacts in the Chicago and Kansas City Districts attributed in part to prohibitively high construction costs. Contractors in the Cleveland District were also worried about cuts but reported strong backlogs and a steady flow of inquiries. Contacts in many Districts also cited tightened financing as a constraint. San Francisco noted particularly steep drops in commercial construction in the San Diego area. Retail space was described as overbuilt in the Boston and Chicago Districts.

Banking and Finance
Loan growth was generally reported to be restrained across the country, with residential real estate lending and consumer lending showing more weakness than commercial lending. Overall loan demand was reported to have weakened in the New York, Kansas City, and San Francisco Districts, and was described as sluggish in the Philadelphia District. St. Louis reported slightly positive overall loan demand. A number of Districts reported sluggish growth or slowing demand for residential real estate loans, and San Francisco described demand for such loans as very weak. Consumer loan demand was reported to have declined in the New York, Chicago, and Kansas City Districts, and grew more slowly in the Philadelphia District. Reports on business lending were generally more upbeat. However, slight to moderate declines in business lending were reported in the New York, Kansas City, and San Francisco Districts. On the funding side, Dallas described competition for deposits as very tough, but Cleveland indicated that core deposits at smaller banks were stable to increasing as a result of a flight to safety by investors.

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