Economic growth from mid-July through the end of August continued in much of the nation, but the pace of such growth decelerated quite noticeably according to a newly unveiled Federal Reserve report.

The Fed's Beige Book roundup of conditions in 12 regions of the nation acknowledged widespread signs that growth levels continue to disappoint from previous rebound predictions for mid-2010 and some areas' levels slowed significantly. The slower pace of growth was particularly noticeable in manufacturing, which had outperformed several other sectors throughout much of 2010. Commercial real estate construction, which didn't have such favorable news early in the year, continued to drag on economic growth.



District 1 -- Boston

The New England area was among one of the more upbeat in recent weeks on improvements in the manufacturing and technology fields. There was even talk of near-term job growth on the way this year in and around Boston. Nearly all manufacturing contacts of the Fed in the area reported favorable results for the second quarter, especially in the pharmaceutical and semiconductor sub-sectors. In commercial real estate, however, pessimism still exists even as leasing activity remained weak and largely unchanged.

District 2 -- New York

Previous improvements in economic growth in the second district fell off a bit in July and August. Commercial real estate vacancies were stable for the most part, but rents were well off levels from one year ago in key parts of the region -- Manhattan, Long Island and northern New Jersey. Additionally, commercial lending standards tightened noticeably even as demand subsided yet again. What had been widespread improvements in manufacturing for much of the year have leveled off or almost vanished.

District 3 -- Philadelphia

Philadelphia demonstrated more mixed economic conditions during the period than its counterparts in districts one and two. Manufacturers reported small declines in new orders and shipments, overall. There was, however, an uptick in demand for wood, food, industrial and measuring/testing products. Demand for business loans remained quite low even as credit quality therein showed improvement, said Fed contacts. Little change in slow commercial construction conditions, or optimism for improvement for that matter, was reported.

District 4 -- Cleveland

Previously stagnant economic growth improved mildly on aggregate. There were reports of marginally lower orders in recent weeks. However, there were also a few contacts reporting double-digit production increases. Some improvement, from very low levels, was reported in inquiries regarding new commercial projects. Still, most activity was tied to industrial and educational needs rather than office and related space. Business-related borrowing remained soft, though there were hints of increased interest on the way.

District 5 -- Richmond

More evidence of slowing growth rates became apparent by August. While overall manufacturing activity was up, most of that was relegated to the early portion of the Fed tracking period. Still, there are areas where improvements continued solidly, primarily for some chemical and packaging manufacturers. Weak banking conditions did not change, especially among small business customers. Meanwhile, more downward pressure on rents amid growing vacancies was reported by commercial real estate contacts.

District 6 -- Atlanta

Like its northern counterpart, sixth district growth receded in July and August. Amid high vacancy rates and little negotiating strength on rents, commercial real estate confidence going forward was bleak. Fed contacts reported businesses with credit lines refused to use them because of unfavorable terms. Even expansion in manufacturing, though continuing, saw the pace downshift.

District 7 -- Chicago

Fed contacts showed cautious optimism despite "moderated" growth. Business spending actually continued at "a steady pace," though inventory rebuilding is off last year's pace. New commercial construction interest remained muted, though an increase in commercial redevelopment appeared to gain steam. Manufacturing growth rates slowed, though Fed contacts admit it was hard to accurately gauge how much conditions softened during the period. The district did export heavily, though, especially among companies doing business in Asia and South America.

District 8 -- St. Louis

Modest growth was the story of this district. Manufacturing continued to hum along with the opening and expansion of plant operations there. Among industries planning expansion in the district were those in automotive, glass and aerospace products. Commercial real estate demand was a city-by-city situation for the period. Vacancy rates decreased in Little Rock and Memphis but grew in Louisville and St. Louis. However, "the pipeline for new projects is lean." Credit standards and demand were stable.

District 9 -- Minneapolis

Most areas of the economy saw growth during the period, with two blatant exceptions being residential and commercial real estate. Commercial permits were well off last year's already slow pace in markets such as Fargo, ND and Montana. Vacancy rates were at a record high, as well. Manufacturing, however, improved on last period's strength and even long-struggling labor markets saw a positive uptick during the period.

District 10 -- Kansas City

Growth was described as "modest" during the period. Though commercial construction woes finally eased somewhat, manufacturing stagnated, and factory orders dropped. Ongoing problems with the housing market were an even bigger story. Still, bankers reported stability in overall loan quality as well as demand from borrowers, which increased earlier in the summer.

District 11 -- Dallas

Energy, transportation and staffing firms were among the areas tied to the most growth in recent weeks. Mixed manufacturing sector performances were expected to give way to a late-year slowdown in the Southwest. Demand for "high-tech" products held steady, though. The lack of private nonresidential construction was very noticeable, said contacts. The primary source of construction activity is attached almost solely to public projects. Meanwhile, business-based bank borrowing decreased again amid perceived widespread pessimism.

District 12 -- San Francisco

Manufacturing activity continued to grow, with best returns coming from semiconductors and technology product-makers. Elevated vacancy levels continued to weigh on demand for commercial construction. Banks reported loan demand dropped, especially among businesses that simply appeared uninterested in all but the most necessary capital spending endeavors.

Brian Shappell, NACM staff writer


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