8 August 2001, 23:02  The FED Beige Book Summary (part 2)

WASHINGTON (MktNews) - The following is the second and final part of the text of the Summary of Commentary on Current Economic Conditions, also known as the Beige Book, released Wednesday by the Federal Reserve:

Banking and Finance

Loan demand was flat to down in most Districts in recent weeks. However, the composition of the slowdown differed by region. In Kansas City and Philadelphia, commercial and industrial lending picked up, while consumer lending declined. Declines in lending in Atlanta, Chicago, and Richmond were largely in the commercial sector. In St. Louis, all types of loans declined, although the most pronounced reductions were in consumer borrowing. In Cleveland and New York, loan demand remained relatively flat, as both consumers and businesses curtailed borrowing. Several Districts reported increases in home mortgage lending.

Overall, Districts characterized financial markets as cautious, with both borrowers and lenders pulling back in response to economic uncertainty. There were some reports of deteriorating credit quality, particularly for credits to manufacturing and agricultural businesses. A number of Districts reported that lenders had tightened standards in recent weeks, particularly for business loans.

Labor Markets, Wages, and Prices

Most Districts reported that conditions in labor markets remained steady or loosened somewhat in recent weeks. Layoffs in many high-tech manufacturing and service firms boosted the number of highly skilled workers applying for jobs through temporary employment agencies. Employers in a number of Districts noted greater ease in finding and keeping qualified workers.

Looser labor markets in most Districts helped to contain wage pressures in recent months. However, benefit costs rose, particularly for health and other forms of insurance coverage. Rising insurance premiums and the slowing economy reportedly prompted some employers to reevaluate benefit packages. Kansas City reported that firms were working on ways to reduce employee benefits such as free parking and health club memberships.

Fuel and energy prices fell in June and July in most Districts, lessening the burden on businesses and easing pressure on consumer budgets. Lower gasoline prices allowed shippers and truckers to reduce or remove fuel surcharges imposed earlier this year. Lower energy costs also contributed to price declines for a number of manufactured goods. However, upward price pressure was reported for pharmaceuticals, various services, and single-family housing in some regions. In addition, retail electricity rates were up sharply in California in June, as previously authorized rate hikes took effect. In general, however, declining input costs and stiff domestic and foreign competition continued to restrain consumer prices.

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