Beige Book: Full Text

Manufacturing
Manufacturing activity was weak or declining in most Districts but improved in others. New York reported some stabilization after months of decline, Kansas City reported a rebound after a weakening in June, and Minneapolis and San Francisco have made gains since the last report. A number of Districts reported that export orders were bolstering manufacturing activity, but manufacturers in several of those Districts have noted some recent slowing in growth from this source. Boston, Philadelphia, Cleveland, Richmond, Chicago, and Dallas reported continuing declines in demand for housing-related products and construction materials. Boston reported declining output of aircraft and other transportation parts and equipment, but San Francisco reported a high rate of aircraft production. Output of motor vehicles and related products was falling in Boston, Cleveland, Atlanta, Chicago, and Dallas. Boston and San Francisco reported rising demand for information technology equipment, but Dallas reported some weakening in demand for high-technology products. Manufacturers in Philadelphia, Cleveland, and Kansas City have increased capital spending or plan to do so, but Boston reported that manufacturers in that District were reexamining capital spending plans, and Chicago reported that several firms were postponing capital projects.

Real Estate and Construction
Residential real estate conditions weakened or remained soft in all Districts, except Kansas City, which reported a modest increase in sales since the last report. Demand for housing was reported to be still moving down in Boston, New York, Chicago, St. Louis, and San Francisco. Residential real estate activity was sluggish in Philadelphia, Cleveland, Richmond, Atlanta, Minneapolis, and Dallas. New York reported low levels of single-family construction but a brisk pace of multi-family construction after an increase in permits in June occasioned by a change in the New York building code effective July 1. Chicago reported a faster rate of decline in residential construction since the last report as well as delays and cancellations in residential building projects. Richmond and Kansas City reported that lower and mid-price houses were selling at a better rate than more expensive houses. Atlanta and Dallas reported that inventories of unsold new houses were edging down.

Commercial real estate activity moved down or remained weak in all Districts except Dallas. Boston, New York, Philadelphia, Atlanta, and Chicago reported signs of softening demand for commercial real estate, including declining leasing activity, rising vacancies, and decreasing construction. Cleveland, Richmond, St. Louis, Minneapolis, Kansas City, and San Francisco reported that commercial real estate market conditions varied across those Districts but in general were not strong. Dallas reported an increase in office leasing but at a slower pace than in the last report. Chicago and Minneapolis noted drops in demand for retail space. Dallas and San Francisco reported that public projects were buoying construction activity.

Banking and Finance
District reports on bank lending generally indicated steady or slowing growth, with weakening demand for residential mortgages and consumer loans and near steady demand for commercial and industrial loans. Residential mortgage lending fell in New York and Richmond, remained slow in Chicago and Dallas, but gained slightly in Philadelphia. Consumer lending was flat to down in Cleveland, Atlanta, and St. Louis and showed little change in New York and Chicago. Commercial and industrial lending was near steady in New York, Philadelphia, and Cleveland and eased in Richmond, St. Louis, and Kansas City. Demand for commercial and industrial loans rose in Chicago--mostly from small and mid-size firms--and was described as solid in Dallas. San Francisco reported that overall loan demand has fallen since the previous report. All the Districts reporting on loan standards noted tightening. New York, Cleveland, Richmond, and San Francisco reported deterioration in credit quality. Dallas indicated that credit quality was holding up, although bankers in that District expected it to decline. Districts reporting on bank funding noted that competition for deposits remained strong. In Dallas, bankers said they were pursuing nondeposit sources of liquidity.

Agriculture and Natural Resources
The agricultural sector continued to struggle under drought conditions in the South, although there was some relief in July and August. In the Richmond District persistent dry conditions were expected to delay crop development and reduce yields; however, the fruit and vegetable harvests have been mostly completed. Atlanta reported some benefit from recent rains, although drought conditions persisted in Georgia. Chicago reported improved crop conditions, although corn and soybean development was behind schedule. Crop development was also behind schedule in the St. Louis District where conditions improved for grain but worsened for cotton. Minneapolis reported a better than expected harvest of winter wheat and expectations that corn production would exceed last year's harvest. Dallas reported dry conditions in much of the District and noted that Hurricane Dolly destroyed cotton and sorghum in the Rio Grande valley. Kansas City reported an increase in wheat yields. Although most Districts with significant agricultural sectors reported strong demand for their products, they also noted that fuel, feed, and fertilizer costs had risen, putting pressure on profit margins. High costs were reported for livestock operations, and Kansas City and Dallas reported that herds were being culled.

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