The Federal Reserve's Beige Book Summary

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Manufacturing

Most Districts reported that manufacturing activity expanded during late July and early August. New York, Richmond, Minneapolis, and San Francisco indicated solid growth. Philadelphia, Chicago, and St. Louis stated that manufacturing expanded but at a slower pace. Manufacturing was stable to increasing slightly in Cleveland, Kansas City, and Dallas, but was described as mixed in Boston and Atlanta.

The automobile and building materials industries showed weakness across most reporting Districts. Cleveland, Atlanta, Chicago, and Dallas all indicated that the auto sector had softened, though one report suggested that some of the reduction in production was related to model changeovers. Six Districts said that industries related to housing experienced weakness, including building materials and construction equipment.

Industries showing improved conditions varied markedly across Districts. High-technology manufacturing was strong in the Kansas City and San Francisco regions and showed steady growth in the Dallas District. A number of Districts reported steady to solid growth in aircraft and electrical equipment production and strength in exports. Chicago noted that some steel producers have started exporting steel regularly for the first time. Most Districts indicated that input price pressures held steady or rose modestly compared to the previous report. Expenditures for plant and equipment remained close to plan in Boston and Cleveland. Contacts in San Francisco reported that productivity improvements continued on trend in 2007. Looking forward, contacts in New York, Philadelphia, Richmond, and Kansas City expressed near-term optimism about business conditions in their sectors; reports from Cleveland and Dallas were somewhat more cautious.

Real Estate and Construction

Residential real estate and construction weakened further in most Districts while the commercial market remained steady. Most Districts reported weak or declining residential sales and declining or stable prices. Markets in a few Districts did show some strength. Both sales and prices have been increasing in the Massachusetts housing market; the New York City apartment market remains tight as rents rise; and home sales rose in Louisville. Inventories of unsold homes are generally reported to be high. Moreover, contacts in Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas believe softness in the market will continue in the near future, with potential for further declines.

Commercial real estate and construction markets were generally stable to expanding across the Districts. Philadelphia, Minneapolis, and San Francisco indicated continued expansion in nonresidential construction and commercial real estate. Dallas described the level of nonresidential activity as high, and St. Louis said commercial construction remained strong. New York, Cleveland, Richmond, Atlanta, Chicago, and Kansas City indicated commercial construction and real estate markets were steady or stable. Vacancy rates are reported to be low or declining in most Districts, and rents are rising modestly in many. Boston, New York, Richmond, Chicago, Kansas City, and Dallas noted some tightening of credit in the commercial real estate market.

Banking and Finance

The demand for residential mortgages continued a downward trend in most Districts. Consumer lending softened in New York, Cleveland, Chicago, and Dallas, while St. Louis reported stable activity. In Philadelphia, personal loans increased on credit card lending. Looking forward, lenders in Dallas do not expect any further deterioration in consumer lending after the softening that was reported earlier in the year. Bankers in Philadelphia continue to see growth in personal lending over the next few quarters, albeit at a slower rate than in the first half of the year.

More than half of the Districts reported a tightening in credit standards. Boston, New York, Richmond, Chicago, Kansas City and Dallas mentioned tightening for both residential mortgages and business loans, while financial institutions in Atlanta and San Francisco said tighter standards were aimed primarily at home mortgage products. Delinquencies in consumer loans and mortgages rose slightly in Cleveland, Atlanta, Chicago, and St. Louis, while New York reported no change in delinquencies across all loan categories.

Demand for business loans was steady or weakening in New York, Cleveland, Chicago, and St. Louis, while Philadelphia reported an increase in demand. Commercial real estate lending increased in Kansas City and was quite strong in San Francisco, where "some banks reportedly are approaching regulatory limits on loan concentrations for this segment."