Fed Beige Book Regional Breakdowns Show Slowing Manufacturing Growth, Concern Over Japan

First District - Boston
Manufacturing, overall, continues to do well in the first district, with pharmaceuticals and semi-conductor industry contacts reporting positive news. However, those in the auto parts-manufacturing game note they are having problems keeping up with increase demand, perhaps partially affected by the Japan situation. Commodity price increases also are of growing concern. Commercial real estate is seeing less of a fall-off than in past months, but job growth stagnation is holding the sector and rent prices back, Fed contacts reported.

Second District - New York
Confidence in most industries appeared to be mixed in the second district. The pace of economic growth there, despite not being robust in the first place, has diminished somewhat. Commercial real estate appeared to enter a level, steady period. There did appear to be an uptick in commercial loan demand, and tightening standards for such loans have returned.

Third District - Philadelphia
Robust manufacturing growth from earlier in the spring has given way to a more tepid expansion rate as summer months approached. Less than one-third of manufacturers experienced an increase in shipments and orders in May - It exceeded 50% as recently as early April. Business loan demand has been mixed, though Fed contacts have characterized general activity on the part of small and medium-sized businesses as "weak." Commercial real estate has changed little, though the "Class A" office building category experienced some newfound demand.

Fourth District - Cleveland
The district's manufacturers, unlike some, have retained a mostly optimistic outlook, largely because its key industries have garnered solid foreign demand. Auto production in the Midwest has grinded to a halt virtually, however, because of the Japanese supply-line disruptions. Prices for other materials also have risen noticeably, a trend not expected to reverse in the very near-term. Business loan demand grew modestly in a diverse range of industries, Fed contacts there noted.

Fifth District - Richmond
Manufacturing's seven-month expansion saw cooling this month, with those in steel and textiles facing particular volatility. Commercial borrowing gains were moderate but "broad-based" across many industries, with capital equipment expenditures showing solid gains. Most orders, however, came from larger manufacturers. Commercial real estate was mixed among sub-markets. Washington, DC and Baltimore seem to still be in the "spotty area" as far as pricing and demand for offices goes; but there was positive news in parts of West Virginia and the Hampton Roads, VA area. The local agriculture industry has been hit hard by poor weather conditions in the southern portion of the region, with corn and soybean plantings being affected harshly.

Sixth District - Atlanta
Commercial real estate remained at low levels in recent weeks and months in what has long been considered a bloated, overdeveloped market. Businesses outside of construction/real estate reported improvements in the area of credit availability, though capital requirements are being weighed heavily by some lenders. Manufacturing saw some increases, and Mississippi River flooding is not expected to cause long-term disruptions. The Japan situation, however, is expected to do so. Abnormally cold and wet weather stung Ag-based businesses throughout the district, though pricing remained very strong for those whose products endured.

Seventh District - Chicago
Manufacturing, which had boomed in the district as much as any other throughout 2011, slowed since early spring. It is expected/hoped to be a short-term phenomenon. Supply line disruptions also are an issue here. Auto-related businesses have tried to increase inventories quickly in an attempt to combat future shortages. However, manufacturers of heavy truck, agricultural and construction equipment saw an uptick, Fed contacts noted. Commercial real estate conditions have changed little, with rents remaining low to maintain occupancy levels. Business spending has increased steadily. Bad weather was a story for the Ag industry in district eight, too.

Eighth District - St. Louis
Manufacturing continued to expand with plant opening/expansion still in place. Tire, food, paper, packaging and machinery performed particularly well as did automotive, though uncertainty dogs the industry post Japanese disaster. As per usual, commercial real estate performances in vacancy rates varied greatly depending on the city. Credit standards for business loans have changed little and demand, if changed at all, leaned toward a decline. Ag production was stymied drastically by heavy rain and flooding this spring.

Ninth District - Minneapolis
Commercial real estate has improved in the region, with vacancy rates down in key markets such as Minneapolis-St. Paul. Manufacturing was up generally, with electronics and aerospace producers leading the way. Like other district, Ag producers struggled amid poor weather. The district is a bit more optimistic than others in part because its job market, on the whole, has demonstrated moderate improvement.

Tenth District - Kansas City
Manufacturing growth slowed on the whole, though factories continued the pace of hiring on high hopes for the summer. High-tech service firms appeared to perform especially well of late. Commercial real estate was mostly flat though much better than spring 2010. Demand for business loans and credit standards have changed little in recent weeks, Fed contacts noted. Ag producers in the district enjoyed higher prices on elevated export demand from China, among others.

Eleventh District - Dallas
The manufacturing situation showed a noticeable increase, but it's been difficult to determine whether it's coming from seasonal demand or actually business condition improvements, the Fed noted. The high-tech manufacturing sector, booming of late in the district, continued to do strong sales and orders; but uncertainty is an issue because of a shortage in Japanese-produced components they need. Commercial loan demand, even in real estate, has improved among large banks. Weather was a problem for Ag producers in the district though, unlike its counterparts, the issue is a lack of precipitation. Both wheat and cotton are expected to do poorly this year.

Twelfth District - San Francisco
Manufacturing posted gains and demonstrated little negative impact stemming from the Japan situation. Semiconductors and technological-based production continues to be the leader in the district. Ag product sales were "robust" though supply constraints could have an impact in the near future. Businesses seem slightly looser about increasing capital spending. However, lending standards remain restrictive here, even in the face of improving overall credit quality for businesses.

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