(UPDATED) Fed Beige Book: Tepid Gains in Economy Through Early April

Just hours after Federal Reserve Chairman Ben Bernanke testified before Capitol Hill lawmakers saying the economic recovery continues to appear on track, albeit at a slow pace, and that there are still some forces threatening ongoing growth, a separate Fed report indicates good news in most industry segments. However, commercial real estate and business credit availability still are far from leading the charge of an economic resurgence.

The Fed's Beige Book study, which tracks economic conditions typically over an approximate six-week period, found there was increased economic activity in 11 or 12 districts through the first week of April. However, loan volume and credit quality largely decreased amid very mixed conditions in the banking/finance sector. Meanwhile, Fed contacts reported that commercial real estate activity remained slow in most of the nation, though some reason for optimism emerged in the Richmond and Dallas areas.

District 1 -- Boston
Fed contacts reported commercial real estate fundamentals as "roughly stable." Commercial property operators trying to obtain loans for improvements, being demanded by renters with increasingly strong bargaining positions, experienced problems in securing financing. Concern over defaults continues to increase despite recent stability.

District 2 -- New York
Commercial loan demand reports were mixed in the greater New York City area. Commercial real estate credit availability was the tightest of all industry categories. Meanwhile, commercial real estate markets bounced between steady and soft in recent weeks. Office vacancies continued to rise and a developer in Buffalo called new development "increasingly sparse."

District 3 -- Philadelphia
Credit quality held stable in recent months, and Fed contacts predicted gains in business lending during the summer. Granted, such credit likely only will be available to business borrowers "with a sound income stream." Commercial real estate should remain weak in the district for the foreseeable future because businesses simply aren't willing to expand at present.

District 4 -- Cleveland
Demand for business loans weakened in March. Commercial real estate credit especially received closer scrutiny. Credit quality of business applicants was a mixed bag, though delinquency levels largely stabilized. And, despite tight credit conditions, commercial construction began to show signs of a rebound in the district.

District 5 -- Richmond
Though commercial and industrial loan demand remained weak, some bankers reported "modest" improvements in both areas. Perhaps surprisingly, commercial real estate activity increased in recent weeks, more so than any region in the nation. Meanwhile, businesses tied to the automotive industry found more difficulties in obtaining financing.

District 6 -- Atlanta
The word for the flow of business credit is District 6 is "subdued." However, bankers noted there is ample credit availability, but very low demand from small businesses. Commercial real estate remained flat, on aggregate. Expectations for the sector are not optimistic for the rest of 2010.

District 7 -- Chicago
Credit availability improved in the district, but Fed contacts said most firms are delaying projects that require borrowing money. It is expected that many middle- and upper-market firms will seek more credit during the second half of 2010. Meanwhile, the overhang of vacant facilities put a damper on demand for new commercial real estate starts.

District 8 -- St. Louis
Commercial and industrial borrowing declined by nearly 5% from mid-February through early-April. Widespread commercial property foreclosures are expected in the near future. The region is the only of 12 Fed districts that reported worsening across-the-board economic conditions for the current Beige Book tracking period.

District 9 -- Minneapolis
Most portions of the district experienced weak commercial construction conditions, and another dip in demand is expected. One positive area, at least for hotel and medical development, was an uptick in projects in Great Falls, MT. The finance industry reported little of note about the present period.

District 10 -- Kansas City
Bankers noted demand for business loans fell. However, the outlook for loan quality is essentially unchanged as concerns over credit quality continue to abate. Commercial real estate remains well behind last year's already low activity levels.

District 11 -- Dallas
Loan demand in and around Texas is seen as soft, but stabilizing. More commercial and industrial loans were in the pipeline than in previous months. However, amid high above-normal vacancy rates, a full-on rebound for commercial borrowing focused on new projects remains far off, said Fed contacts.

District 12 -- San Francisco
Business borrowing was stable in most parts of the district and up in others. Still, reports of increased commercial and industrial borrowing largely are tied to replacements and rebuilds rather than new projects. Contacts do not expect a spike in commercial real estate demand in the district through mid-summer, at least.

Brian Shappell, NACM staff writer

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