Beige Book: Summary

Real Estate and Construction

Residential real estate continued at a slow pace nationwide. Sales were down in most Districts, but mixed activity was noted in the Boston, Atlanta and Minneapolis Districts. Boston, New York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas noted decreases in housing prices. Inventories of unsold homes remained high in the New York, Atlanta, Kansas City and San Francisco Districts, but declined in Chicago and Minneapolis. Philadelphia, Richmond, Chicago and Kansas City reported relatively stronger demand for lower- and middle-priced "starter homes."

Commercial real estate markets weakened broadly. Vacancy rates rose in Boston, New York, Richmond, Chicago, Kansas City and San Francisco, but were mixed across markets in the St. Louis District. Leasing activity was down in almost all Districts. Rents fell in the Boston, New York and Kansas City Districts. Despite reductions in construction materials costs, commercial building activity declined in many Districts with tighter credit conditions as a factor.

Banking and Finance

Business and consumer lending activity continued to slow in most Districts. New York reported weakening loan demand in all categories, while Kansas City and San Francisco also witnessed substantial lending declines. Lending activity in other Districts was mixed among loan categories. In contrast, Philadelphia indicated that its banks saw loan volume rise in November, and some regional banks reported picking up new business borrowers. Cleveland reported that business loan volume has been steady to higher, and some bankers reported actively marketing their loan business.

Credit standards rose across the nation, with several Districts noting increases in loan delinquencies and defaults, especially in the real estate sector. Credit conditions remained tight. Chicago reported that FDIC actions and Federal Reserve lending had improved liquidity and slowed deposit outflows. Dallas indicated that government capital investments have led larger institutions to feel less constrained in their lending, while some smaller banks reported that scrutiny from regulators was making new deals more difficult to forge.

Agriculture and Natural Resources

Districts reported mixed results in agriculture. Chicago, St. Louis, Minneapolis, Kansas City and Dallas expected decent harvests. However, Richmond, Chicago and Minneapolis reported delays in harvests due to wet weather. Atlanta, Chicago, Minneapolis, Kansas City, Dallas and San Francisco reported decreases in several crop and/or cattle prices. Chicago, Kansas City, Dallas and San Francisco noted that cattle producers' profits were squeezed. Tightening credit conditions for agricultural producers were noted in the Kansas City, Dallas and San Francisco Districts. The bankruptcy of a large ethanol producer created uncertainty for crop producers near its Midwest plants.

Activity in the energy and mining sectors decreased since the last report. Atlanta, Minneapolis, Kansas City, Dallas and San Francisco reported softening in oil and gas activity due to lower prices and, in some cases, weather disruptions. Meanwhile, mining activity decreased in the Minneapolis District.

Labor Markets

Signs of labor market slowing were evident in several District reports. Boston, Richmond, Chicago and Dallas reported that demand for temporary staff decreased. Boston and Cleveland noted that seasonal hiring has been scaled back at retail stores. Several businesses in the Atlanta District reported that layoffs accelerated and hours declined. Chicago noted that further weakness in the demand for labor was expected in a number of sectors. Dallas reported that job cuts were particularly pronounced in the manufacturing sector. San Francisco reported job cuts and hiring freezes across a wide range of industries. However, demand for skilled labor remained strong in Chicago, contacts in Boston reported difficulty filling open positions in some professions and Minneapolis cited difficulty finding skilled workers in some areas.

Wage pressures were largely subdued. Richmond reported that wages for temporary employment remained unchanged, while wages in the retail sector declined. Aside from health care and other high-skill technical positions, most contacts in Atlanta suggested that wage pressures continued to diminish. Business operators in the Minneapolis District indicated that they expect only modest wage increases in their communities during 2009. Chicago, Kansas City and Dallas reported minimal wage pressures. In San Francisco, the region's few open positions have been attracting large numbers of applicants, thereby alleviating upward wage pressures.

Prices

District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly for energy, fuel, and many raw materials and food products. In the New York District, firms across a wide range of industries reported that their selling prices have leveled off, while prices paid have decelerated. Philadelphia noted that reports on input costs and output prices showed a general decline. Cleveland reported that transportation surcharges were removed for some contacts. In Atlanta, most District contacts reported that they did not plan to raise output prices due to lower input costs and weaker demand. A manufacturer in Minneapolis noted success in passing along input cost increases to customers, but will likely lower prices going forward. Manufacturers in Kansas City reported a sharp deceleration in raw materials prices. Many contacts in Dallas reported that they resisted price-cutting pressures from their customers, but that they expected to lower prices over the next several months. San Francisco noted declines in the prices of transportation services. A number of District reports mentioned that retailers were widely discounting prices in anticipation of a slow holiday sales season.

© 2009 CNBC.com

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