The Federal Reserve's Beige Book Summary

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Services

Districts reporting on business services indicated the sector is in expansion but the strength varied. Temporary staffing firms reported increased hiring, with the exception of activity to support financial services and real estate. Shipping activity was mixed and suggests some softening. Container shipments and regional freight activity were softer in the Atlanta and New York Districts, but freight hauling and shipping firms in the Dallas District reported increases in volume. Dallas District airlines say traffic is steady and bookings are solid.

Construction and Real Estate

Home sales continued to fall or increased more slowly in most Districts. In some instances, buyers could no longer secure financing or were unable to sell their current homes. New home inventories remained elevated, and builders continued to curb new home construction. Rising inventories of existing homes added to uncertainty about the overall health of the housing market.

Commercial market fundamentals remained solid. Most Districts reported steady absorption of commercial space. Rental rates were firm to rising across Districts, with sizable increases for Manhattan office space. Construction activity continued at a steady pace overall. Some softness in commercial investment activity was noted, however, and several Districts reported a move to more conservative financing. Reports suggested developers are becoming more cautious—in some cases shelving or canceling projects.

Banking and Finance

District reports indicated increased delinquencies and a slight deterioration in credit quality. Lenders in many Districts tightened credit standards, including for consumers and all types of real estate. Consumer lending grew more slowly in most Districts. Lending for home mortgages, equity lines and refinancing continued to soften or decline in most Districts, which some reports attributed to tighter lending standards. Overall business lending was up, but tightening lending standards were applied, particularly for real estate.

Agriculture and Natural Resources

Favorable agricultural conditions in much of the country have allowed harvests to run ahead of normal schedules and contributed to above-average crop yields throughout much of the country. A near-record corn crop and above-average soybean yields are expected. Livestock producers reported strong demand and high prices.

Bumper crops have strained storage capacity and caused transportation problems. The Chicago District notes that transportation and storage problems emerged because of the size and speed of the harvest and because cash prices are enough lower than futures prices that farmers have an incentive to store crops until 2008.

Crop production has been hampered by dry or drought conditions in Alabama, the Carolinas, Georgia, Kentucky, Tennessee and Virginia. Shortages of feed and low forage supplies have led some livestock producers in these areas to cull their herds. The Chicago District reports that crop yields in Indiana, Michigan, and Wisconsin were less affected by a summertime drought than had been anticipated by some observers.

Energy activity held at robust levels, and oil production was up slightly. While natural gas drilling activity is still vigorous, there were reports that high costs have or will lead to reductions in production. The Kansas City and Minneapolis Districts reported that overall mining activity was strong and expanding, with mines in the Minneapolis District producing near capacity.

Labor Markets

Labor markets remain tight across much of the country, and there continues to be moderate upward pressure on wages and benefits. Job growth eased in some regions, however, and wage pressures softened.

Most Districts report worker shortages in a variety of occupations, with sizable wage increases for workers in short supply. Positions mentioned as difficult to fill include scientific, technical, accounting, finance, engineering, marketing, health-care, truckers, welders, ironworkers, crane operators, office workers and energy-service workers. Low-skilled and entry-level workers are in short supply in some areas, including those in the retail and hospitality industries.

Prices

Upward pressure on input costs was reported by most Districts. Pushed up by strong domestic and international demand, energy and raw material costs are characterized as high by several Districts. Prices are up for a broad range of foods, including milk, corn, soybeans, wheat, beef, chicken and vegetables. Declines in the value of the dollar and high shipping costs have made imported goods more expensive. Insurance costs have increased in the Atlanta District.

The ability to pass higher input costs to selling prices was mixed. Some manufacturers raised selling prices as a result of higher costs, such as for food products, chemicals, machinery and oil and gas equipment. But there were also reports of lower prices, particularly for construction-related materials, such as lumber, wood, wallboard and some metals, pushing down construction costs. Competitive pressures are restraining retail price increases in many instances. Prices are higher for food products and at restaurants. Vehicle prices are lower, with dealers using incentive and discount programs or manufacturers adding features to vehicles without raising prices. Reports from the service sector suggest there have been continued increases in fees and fuel surcharges, but the rate of increase has not changed.