TEXT: Federal Reserve Beige Book Summary Section>

     WASHINGTON (MNI) - The following is the text of the summary section 

of the Federal Reserve's summary of economic conditions report, or Beige 

Book, released Wednesday: 

     Overall Economic Activity 

     Economic activity increased in most of the U.S., with eight of 

twelve Federal Reserve Districts reporting modest to moderate growth. 

Nonauto retail sales grew modestly, as several Districts reported more 

holiday traffic compared with last year. Auto sales were flat on 

balance. The majority of Districts indicated that manufacturing 

expanded, but that growth had slowed, particularly in the auto and 

energy sectors. New home construction and existing home sales were 

little changed, with several Districts reporting that sales were limited 

by rising prices and low inventory. Commercial real estate activity was 

also little changed on balance. Most Districts reported modest to 

moderate growth in activity in the nonfinancial services sector, though 

a few Districts noted that growth there had slowed. The energy sector 

expanded at a slower pace, and lower energy prices contributed to a 

pullback in the industrys capital spending expectations. The 

agriculture sector struggled as prices generally remained low despite 

recent increases. Overall, lending volumes grew modestly, though a few 

Districts noted that growth had slowed. Outlooks generally remained 

positive, but many Districts reported that contacts had become less 

optimistic in response to increased financial market volatility, rising 

short-term interest rates, falling energy prices, and elevated trade and 

political uncertainty. 

     Employment and Wages 

     Employment increased in most of the country, with a plurality of 

Districts reporting modest growth. All Districts noted that labor 

markets were tight and that firms were struggling to find workers at any 

skill level. Minneapolis indicated that construction firms had turned 

down business because they could not find workers, and Atlanta reported 

that a few contacts were either actively overstaffing or retaining 

employees through lulls in demand in anticipation of future growth. 

Wages grew throughout the country, with the majority of Districts 

reporting moderate gains. Wages increased across skill levels, and 

numerous Districts highlighted rising entry-level wages as firms sought 

to attract and retain workers and as new minimum wage laws came into 

effect. 

     Prices 

     The majority of Districts reported modest to moderate increases in 

prices. Most Districts indicated that firms input costs had risen, but 

reports were mixed on whether they could pass the higher costs on to 

customers. Reports often cited rising materials and freight prices as 

sources of cost increases, and a number of Districts said that higher 

tariffs were also a factor. While prices of most inputs were up, several 

Districts noted that fuel costs had gone down. A number of Districts 

reported rising home prices, while prices for commercial and industrial 

space either increased or were flat. Prices for agricultural commodities 

were generally somewhat higher. 

     * Prepared at the Federal Reserve Bank of Chicago based on 

information collected on or before Jan. 7. 

     Highlights by Federal Reserve District 

     Boston 

     Business contacts reported continued year-over-year growth in 

revenues even as they cited signs of a some-what slower pace. Selected 

labor markets (occupations, locations) remained tight and wage increases 

were moderate. Some retailers and manufacturers raised selling prices. 

Most respondents said their outlook was positive, although somewhat less 

certain than earlier. 

     New York 

     Regional economic activity leveled off in the latest re-porting 

period, while labor markets remained tight and wage growth picked up 

somewhat. Input costs and sell-ing prices rose at a steady pace. Holiday 

season sales were a bit on the sluggish side but still up from a year 

ago. Tourism remained brisk, but most other sectors saw activity flatten 

out or decline slightly. Banks reported a dip in loan demand. 

     Philadelphia 

     Economic activity maintained a modest pace of growth, although 

further slowing occurred among service sectors and some real estate 

activity declined. Lack of qualified labor continued to constrain hiring 

and raise wage pres-sures. Price increases remained modest. 

Nevertheless, firms remained generally positive about the six-month 

outlook. 

     Cleveland 

     Economic activity in the Fourth District increased slightly. Hiring 

increased at a moderate pace. Upward pressure on costs and selling 

prices continued. Retailers reported slightly increased demand. 

Manufacturing and banking contacts noted a seasonal slowdown. 

Nonresidential construction continued to be strong and housing demand 

stabilized. Professional services firms reported increased activity 

driven by demand for information technologies. 

     Richmond 

     The regional economy expanded at a modest rate, on balance, in 

recent weeks. While many service sector industries saw positive growth, 

manufacturers reported a decline in shipments and orders and faced 

higher input costs due to tariffs. Loan demand increased and Fifth 

District ports experienced robust growth. Overall, labor demand and 

wages increased modestly while price growth remained moderate. 

     Atlanta 

     Economic activity improved at a moderate pace. The Districts labor 

market remained tight and wages in-creased, on average. Nonlabor input 

costs picked up; however, reports of firms ability to pass along 

increases were mixed. Holiday sales were solid. Home sales were subdued. 

Manufacturers noted a decrease in new orders and production. Bankers 

noted steady activity. 

     Chicago 

     Economic activity grew at a modest pace. Employment, consumer 

spending, and business spending increased modestly; manufacturing 

increased slightly; and construction and real estate activity was 

little changed. Wages and prices rose modestly and financial conditions 

deteriorated slightly. Prospects for farm income improved as corn, 

soybean, and wheat prices moved higher. 

     St. Louis 

     Reports from contacts indicate that economic conditions have 

continued to improve, although the pace of growth has slowed since our 

previous report. District banking contacts reported positive but slower 

growth in loan volumes during the fourth quarter. 

     Minneapolis 

     Ninth District economic activity grew moderately. Labor demand has 

ebbed slightly but remained healthy overall, while labor markets 

remained very tight. Price pressures were modest. District manufacturers 

indicated that business conditions were strong and generally expected 

to continue, with upbeat outlooks for the year to come. Holiday retail 

spending was strong. 

     Kansas City 

     Economic activity was flat since the previous survey, but 

expectations were generally positive. District agricultural conditions 

remained weak, and activity in the energy sector eased slightly as the 

outlook for oil prices declined. However, retail sales were strongly 

above year-ago levels, and manufacturing, wholesale trade, and 

professional and high-tech sectors continued to expand. 

     Dallas 

     While economic activity remained healthy, growth abated to a more 

modest pace. A broad-based deceleration was seen across manufacturing, 

services, retail, and energy. Hiring continued, and widespread labor 

shortages further elevated wages. Price pressures eased slightly. 

Out-looks were markedly less optimistic than the previous report. 

     San Francisco 

     Economic activity in the Twelfth District continued to expand at a 

moderate pace. Labor market conditions remained tight, and price 

inflation was flat. Sales of retail goods expanded moderately, and 

activity in the consumer and business services sectors was solid. 

Conditions in the manufacturing sector strengthened modestly. Activity 

in real estate markets was solid on balance. Lending activity ticked 

down. 

     ** MNI Washington Bureau (202) 371-2121 ** 

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