The following is the unedited transcript of the news release from the U.S. Federal Reserve Bank.


Reports from the Federal Reserve Districts suggest that economic activity remained generally weak in late April and May. Three Districts described economic activity as softer, weaker, or lower, with an additional four Districts reporting slower, sluggish, or modest economic growth. The remaining five Districts of Philadelphia, Cleveland, Atlanta, St. Louis, and San Francisco described activity as stable or little changed in recent weeks.

Consumer spending slowed since the last report as incomes were pinched by rising energy and food prices. Higher energy prices also appeared to damp domestic tourism. Reports on nonfinancial services varied across Districts and industries. Manufacturing activity was generally soft in recent weeks, with weak demand for housing-related and some other products but with increasing demand for exports. Residential real estate markets remained weak across most Districts. Commercial real estate conditions varied across Districts, as did reports on nonresidential construction activity. Lending activity also varied across Districts and market segments, though tighter credit standards were reported for most loan categories. Districts reporting on the agriculture and energy sectors noted improved crop conditions and increased drilling and extraction activity.

Reports of higher input costs were widespread. Manufacturing contacts in several Districts noted some ability to pass along higher costs to customers. Retailers reported mixed results with respect to raising final goods prices. In most Districts, wage pressures were reported as moderate or limited for all but a few skilled-labor positions, as hiring activity remained spotty in most Districts.

Consumer Spending and Tourism

Consumer spending slowed further since the last report. Contacts in several Districts said rising energy and food prices contributed to softer sales in other categories. The overall pace of retail sales moderated in the Districts of Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, Dallas, and San Francisco, and was level in Cleveland, Chicago, and Kansas City. Retail sales reports were mixed in Boston and New York. According to contacts, retail inventory levels were generally higher in the Atlanta District and among some types of stores in San Francisco; some establishments in the New York, St. Louis, and Richmond Districts expressed concerns about inventory levels. In the Boston District retail inventories were stable. Employment was on the whole unchanged at Boston District retailers, whereas retailers in the Cleveland District said they were only hiring for new stores, and Richmond District retail contacts reported job cuts.

Reports on overall sales of automobiles and light trucks were weak, with several Districts indicating that sales of trucks and SUVs declined. Although dealers generally struggled to move vehicles off of their lots, contacts in the Richmond, Atlanta, and Chicago Districts reported solid sales of hybrid and other fuel-efficient vehicles.

Tourist activity varied across Districts. New York contacts said that tourist activity had softened, noting lower attendance at Broadway theaters. San Francisco reported weaker hotel bookings in Southern California and in Hawaii, but record hotel occupancy rates in parts of Alaska. Higher gasoline prices appeared to weaken tourism activity in the Chicago District, but increased activity at some resorts in the Richmond District as families took vacations closer to home. International visitors boosted tourism activity in the Atlanta and Dallas Districts.

Nonfinancial Services

Reports from nonfinancial services industries varied among Districts. New York and Minneapolis reported weaker business conditions while contacts in the Richmond District reported slower revenue growth, except in telecommunications. Demand growth for service providers slowed in the San Francisco District. Demand at services businesses in Boston and Chicago, however, was mixed and the pace of business spending was little changed in the Chicago District. Meanwhile, demand in the service sector generally strengthened in St. Louis and Kansas City. Staffing agencies in the Richmond District reported somewhat weaker demand overall, while staffing agencies in the Chicago and Dallas Districts said that demand was stable. In transportation services, intermodal shipments edged down in the Atlanta and Dallas Districts, while freight service growth was flat in the Cleveland District. Reports on air travel remained strong despite route reductions, according to contacts in the Kansas City Districts.

In service sector labor markets, Chicago reported a slower pace of hiring in recent weeks and Minneapolis reported that employment in professional services companies decreased from a year ago and is expected to remain flat over the next year. Cleveland and Richmond reported little net change in services employment, while contacts in the St. Louis District said that expansion at firms in some services industries will lead to additional hiring. Boston and Dallas noted tight labor markets for some skilled workers.

Manufacturing

Manufacturing activity was generally soft since the last report. Boston, New York, Richmond, Atlanta, and Chicago reported that activity had weakened, although St. Louis, Minneapolis, Kansas City, and Dallas indicated that activity had increased slightly. Philadelphia, Cleveland, and San Francisco described factory activity as nearly steady. Reports of softer demand for housing-related products continued to be widespread. Many Districts cited higher production costs and cuts in employment that contacts attributed to slumping home sales and construction. The Atlanta and Chicago Districts indicated that automotive production or sales fell short of expectations, while the Cleveland District saw an uptick in the production of domestic nameplates. Reports on food processing were mixed with some Districts indicating that higher prices had constrained demand, while others noted rising demand.

Industries demonstrating increased activity were boosted, in part, by a strong overseas market. Cleveland, Atlanta, Chicago, and Dallas reported that the demand for steel was strong. The output of energy-related equipment increased in the Boston, Cleveland, Atlanta, and Dallas Districts, while strong sales of farm equipment boosted demand for manufacturers of heavy equipment according to Chicago and San Francisco. Dallas also reported strong demand for transportation equipment to supply defense and aircraft industries.

Real Estate and Construction

Residential real estate markets were generally weak across most of the nation. District reports indicated flat or declining home sales in Boston, New York, Cleveland, St. Louis, and Dallas, and contacts in Philadelphia did not expect housing activity to expand strongly this year. Contacts in San Francisco reported that housing markets remained exceptionally weak, although a few reports pointed to some recent pickup in home sales attributed to increased affordability. Scattered reports from Philadelphia and Kansas City indicated seasonal improvements. Inventory levels of new and existing homes remained high or were rising in New York, Philadelphia, Cleveland, Richmond, and San Francisco. Home sales prices decreased somewhat in Boston, Atlanta, Kansas City, and San Francisco, but remained relatively stable in Richmond and Chicago. The New York and Chicago Districts noted that some potential buyers had difficulty in obtaining financing. Residential construction declined in Chicago, St. Louis, and Minneapolis, but was flat to slightly higher in parts of the Atlanta District and spiked in areas of the Dallas District where demand for apartments was solid. Homebuilders in Cleveland expected no improvement in the housing industry for the remainder of 2008, and Chicago reported that limited credit availability for new developments had caused many builders to suffer losses on existing projects. Richmond and San Francisco noted an increase in home foreclosures.

Commercial real estate conditions varied in April and May, with some Districts reporting that activity had softened. Leasing activity eased in Boston, New York, Philadelphia, Richmond, and San Francisco. Minneapolis, however, reported that market activity was up modestly, while activity was mixed across the St. Louis District. Vacancy rates edged higher in Boston, Kansas City, and San Francisco, as well as in pockets of the Richmond and St. Louis Districts. Absorption was negative in Boston and in Minneapolis for both office and manufacturing space. Overall rents were on the rise in New York, but were stable or beginning to slip in Boston, Philadelphia, Richmond, and Kansas City. Sales trended downward according to the New York, Philadelphia, and Kansas City Districts.

Reports on nonresidential construction activity were mixed. Contacts from Chicago and Minneapolis saw slight increases in activity. Philadelphia, Cleveland, Richmond, Atlanta, and Dallas, however, reported easing or weak levels of construction. A number of Districts--Cleveland, Richmond, Chicago, and Dallas--reported that obtaining financing remained difficult for some projects.

Banking and Finance