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Economic activity in the U.S. continued moderate expansion from November through December, according to the latest Federal Reserve Beige Book. Conditions were said to be "improving" in four of the twelve Federal Reserve Districts, with eight districts indicating modest to moderate activity increases.
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Contacts in the manufacturing sector in all Districts reported that activity continued to recover, with the Richmond and Chicago Districts citing especially solid gains in orders. However, the Boston, Atlanta, and Dallas Districts noted that business remained weak for manufacturers selling into the construction sector. Respondents in the Chicago District pointed to pent-up demand for both light and heavy motor vehicles, attributed to an aging fleet, as a key driver of activity in the manufacturing sector.
Overall, demand was generally characterized as stable and steady, and no District made mention of lingering fears of a double-dip recession, in contrast to the summer reporting periods.
Capacity utilization continued to trend higher and is approaching normal rates for some contacts in the Cleveland and San Francisco Districts, while production in high-tech manufacturing was reportedly at high capacity in Dallas; some manufacturers in the St. Louis and Minneapolis Districts said they have or will soon expand capacity. Production levels increased in the Cleveland, Atlanta, Chicago, and Kansas City Districts.
On the negative side, the Philadelphia District characterized the flow of new orders as "erratic," while the Boston, Atlanta, and Dallas Districts identified construction-related manufacturers as continuing to show considerable weakness, and makers of wood products in the St. Louis and San Francisco Districts reported very soft demand.
The Boston, Cleveland, and San Francisco Districts reported concerns about input prices, particularly of commodities; manufacturers in the Boston, Cleveland, and Richmond Districts indicated they had experienced lengthening lead times, shortages, or other difficulty obtaining supplies of some inputs.
Only St. Louis mentioned firms with substantial investment plans for 2011. Boston, Cleveland, Chicago, St. Louis, and Kansas City reported that some factories had plans to increase employment, although these hiring plans were typically characterized as modest. The Philadelphia, Cleveland, Chicago, Kansas City, Dallas, and San Francisco Districts described the 2011 manufacturing outlook as optimistic.
Retailers in all Districts indicated that sales appeared to be higher in this holiday season than in 2009 and, in some cases, better than expectations. Nonfinancial service-sector contacts in ten Districts cited demand increases ranging from slight to "relatively strong." Transportation services were more mixed, with the Cleveland, Atlanta, and Kansas City Districts noting stable to slowing shipping volumes.
Financial conditions were mixed across the Districts reporting on it, with overall loan demand slowly improving in Philadelphia and Richmond and weaker in St. Louis and Dallas. The Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco Districts cited increased activity in the energy sector, while energy production in the Cleveland District was stable.
Residential real estate markets remained weak across all Districts. Commercial construction was described as subdued or slow, while commercial leasing activity reportedly increased in the Richmond, Chicago, Minneapolis, and Kansas City Districts.
Labor markets in most Districts appear to be firming somewhat, but with virtually no upward pressure on wages. All District reports indicated that employment levels are rising in at least some sectors, generally by modest amounts; however, some employers in the New York, St. Louis, and Minneapolis Districts also mentioned job cuts.