DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on January 11, 2012. It was "Prepared at the Federal Reserve Bank of San Francisco and based on information collected on or before December 30, 2011. This document summarizes comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials."

The excepts were chosen for their relevancy to the recruitment, staffing, employment services, and IT services sectors. The inclusion or exclusion of any sections or wording, the inclusion of each District's service areas (note that sections of some states are divided and end up in more than Fed District), as well as emphasizing certain sections with special typefaces (e.g. bold-faced) was done solely at the discretion of brucesteinberg.net. The full report can be found at the Federal Reserve Board.

The next Beige Book is expected to be published the end of February 2012 at which time we will produce our next summation.

First District -- Boston (CT, MA, ME, NH, RI & VT)

Most business contacts in the First District report modest revenue growth from a year earlier. ... Advertising and consulting firms, by contrast, say business improved noticeably between the third and the fourth quarters, bringing a strong 2011 to a close. Some firms are hiring, but modestly; wage increases, if occurring, remain moderate.

Manufacturing and Related Services

Not much has changed since our last manufacturing report in mid-November. Most contacts report growing sales and some are hiring, albeit in small numbers. Two contacts in the semiconductor industry report a substantial weakening of business in the summer and fall but both seem optimistic that the decline is transitory. Overall, the mood remains cautious.]

... Five contacts report that they are hiring, eight report flat to maybe a small decline and none reports any significant staff reductions. Several contacts mention that they are having trouble finding qualified staff, but some have come up with more creative ways to bring in the right people. Firms continue to devote resources to capital expenditures. None reports any problems raising money to pay for needed investment and, in fact, many are able to finance all capital spending with retained earnings.

Selected Business Services
Consulting and advertising contacts in the First District report strong growth in the fourth quarter after a generally weaker third quarter. Marketing and advertising contacts indicate that 2011 growth has averaged 8 percent to 9 percent (annual rate), driven largely by an increase in large orders from large clients. Strategy and business consulting contacts report low double-digit annualized growth, driven by strong private equity business, mergers and acquisitions, and corporate consulting. Contacts note that many clients have a lot of cash and are becoming more confident that--despite risks--the U.S. economy will "muddle through" and thus are willing to spend. In addition, consulting firms have seen a shift in demand towards services that can be directly tied to the bottom line such as sales and process efficiency rather than strategy and management.

... Hiring activity continues to be mixed. Two consulting contacts report strong 2011 employment growth, while three firms kept employment flat and one continued a year-long downsizing process. The two firms reporting job growth expect hiring to remain strong (about 10 percent) in 2012, while a marketing firm plans to increase employment modestly, and the other firms expect flat 2012 employment. Firms that increased employment did so to keep up with a growing workload, while firms downsizing in the third or fourth quarter emphasized cost controls.

Second District -- New York (CT, NJ & NY)

The Second District's economy has grown at a somewhat faster pace since the last report, led by brisk holiday-season spending. Labor market conditions, as well as prices, have remained generally stable. Manufacturers report modestly improved general business conditions and steady employment since the last report, along with increased optimism about the near-term outlook. ... Commercial real estate markets have been stable to moderately stronger in late 2011. Finally, bankers report increased loan demand, steady to somewhat tighter credit standards, and lower delinquency rates across the board.

Other Business Activity
A major New York City employment agency reports that hiring activity has slowed somewhat since October, particularly in the financial services sector, but notes that it is difficult to gauge the underlying climate during this typically slow season. Contacts at major retail chains indicated that they hired more seasonal workers this year than last. More broadly, both manufacturers and service-sector firms continue to report that employment levels at their firms remain steady, on average, though a growing number of manufacturing contacts across New York State plan to hire more workers in the months ahead.

Manufacturers across New York State report that general business conditions improved since the last report, and respondents have grown considerably more optimistic about the near-term outlook. Both manufacturers and other firms report that their selling prices remain flat, though a growing number expect to raise prices in the months ahead. Separately, a contact in the trucking industry reports that shipping tonnage (volume) has picked up considerably in recent months and was up 6 percent from a year earlier in November.

Third District -- Philadelphia (DE, PA & NJ)

Overall business activity in the Third District has continued to grow modestly since the previous Beige Book, with various sectors experiencing typical seasonal patterns--positive and negative. Since the last Beige Book, manufacturing activity has continued to grow modestly with some signs of a seasonal slowdown. ... Third District banks have reported slight growth in loan volume outstanding since the last Beige Book. New home construction slowed further, driven by seasonal trends and falling prices for existing homes. Commercial real estate contacts continued to report slow growth year-over-year, although anticipated seasonal slowing has been a factor since the last Beige Book. Service-sector firms reported generally modest growth.

The general outlook seems to have improved for most firms since the last Beige Book. Manufacturers anticipate rising shipments and orders during the next six months. Retailers expect slightly stronger sales, and auto dealers are increasingly confident that pent-up demand will carry well into the spring selling season. Banking, real estate, and service-sector firms continue to plan for slow growth in 2012. Many have voiced concerns over the ongoing lack of a housing recovery, the threat from Europe's economic woes, and the indecision on numerous federal budget issues.

Manufacturing
Since the last Beige Book, Third District manufacturers have reported further modest increases in new orders and shipments. Gains were widespread among the makers of industrial machinery and equipment, and of food products. Similarly, a supplier to the broad industrial market confirmed continued growth but noted some softness of a seasonal nature. Some makers of lumber and wood products and of electrical machinery reported seasonal slowing. However, one electrical equipment firm logged the worst month of orders in five years. Several contacts attributed additional slowing to end-of-year inventory adjustments. Contacts in primary metals reported mixed results dependent upon their firm's market orientation, for example, to Europe or to the domestic auto industry.

Most Third District manufacturers remain split between expecting business conditions to improve during the next six months and expecting conditions to stay the same.

Services
Third District service-sector firms have continued to report modest growth since the last Beige Book. A staffing firm noted that firms appear busier, based upon an end-of-year uptick in short-term contracts to provide coverage for vacations and extra holiday business--a pattern not observed since the recession began. The overall trend toward temporary or contract basis for new placements, rather than permanent, full-time hires, remains unchanged. Contacts indicated that financial services will face challenges in 2012, and many sources expressed concern for defense-related activity in the wake of recent and ongoing federal budget indecisions. The majority of service-sector firms anticipate slowly improving growth rates through 2012.

Prices and Wages
On balance, price levels have changed little since the previous Beige Book. Auto dealers and freight shippers still command favorable pricing power. Several manufacturing firms recently raised prices and have yet to observe any pushback from their customers. ... Most firms reported no significant upward wage pressure. While most firms are anticipating greater increases in health benefit costs, a few have indicated a significant rollback from last year's large rate hike.

Fourth District -- Cleveland (KY, OH, PA & WV)

The economy in the Fourth District grew at a slow pace during the past six weeks. Manufacturers reported that new orders and production were stable. ... The demand for credit by businesses and households was characterized as either steady or increasing slightly.

Labor market reports indicated that hiring remains at a low level, while recruiting high-skilled workers was difficult. Staffing-firm representatives saw growth in the number of new job openings, with vacancies concentrated in healthcare and energy. Wage pressures were largely contained. Other than a boost in steel prices, upward pressure on raw material prices has abated.

Manufacturing
New orders and production at District factories were mainly stable during the past six weeks. Any declines were attributed to seasonal factors or lessening demand from European and Chinese customers. Compared to year-ago levels, the majority of our contacts noted a moderate improvement in output. However, they are cautious in their outlook and expect little change in demand during the upcoming months. ... Demand is being driven by autos, energy, and heavy equipment industries.

Capacity utilization was below normal at most factories, while steel producers saw their utilization rates at or near normal levels. Inventories were in line with sales for the majority of our contacts. ... New hiring remained at a low level. Those adding to payrolls found it difficult to recruit professional and high-skilled production workers. Wage pressures are contained.

Fifth District -- Richmond (MD, NC, SC, VA & WV)

District economic activity generally flattened or improved slightly since our last report. Manufacturing activity was little changed in late November through mid December, while port activity slowed. ... Non-retail services firms also reported stronger revenues in recent weeks. In addition, most tourism contacts indicated bookings were up. In finance, however, loan demand continued to be weak, with the exception of commercial loans. ... Manufacturing employment declined somewhat, while the average workweek ticked up and wages advanced in line with our last report. Retailers reduced their payrolls and wages flattened, while non-retail services providers added to their payrolls and average wages increased in that subsector.

Manufacturing
District manufacturing activity remained flat since our last report. Our latest survey showed little change in shipments, but a slight increase in new orders. A producer of residential doors reported that business at his firm remained depressed. Similarly, a furniture manufacturer said that demand was generally sluggish across all categories, particularly for residential furniture. In contrast, a fabricated metal producer cited an improvement in December's order volume, which he attributed to customers placing orders in advance of higher basic metals prices. That increase in orders allowed his company to operate at capacity and avoid employee layoffs. Moreover, an automobile parts manufacturer ordered new manufacturing equipment due to increased demand and the need to reduce employee overtime. According to our survey respondents, both raw materials prices and finished goods prices grew at a notably slower pace than a month ago.

Services
Revenues at non-retail services firms accelerated in recent weeks. Hospital and other healthcare contacts noted that mergers have increased among smaller hospitals and physician practices, as changes in healthcare roll out. Nursing home executives also expressed concern about reduced Medicare payments and the inability of potential resident-care patients to sell their homes. Revenues rose more quickly at medical records management firms, temp staffing agencies, and telecommunications firms. In addition, a pickup in business at engineering firms was noted in recent weeks. An engineering contact in West Virginia commented that old projects that "have been on the shelf" were proceeding. Prices at services firms increased at a somewhat faster pace since our last report.

Labor Markets
Assessments of labor market activity changed little since our last report. A representative at a Charlotte staffing and recruiting company for accounting and finance reported an increase in corporate hiring. A staffing services contact from Charleston, South Carolina indicated that 2011 has been an exceptionally strong year for temporary placements, but noted the pool of sufficiently qualified candidates was relatively small and many applicants were disqualified by drug tests. Several contacts cited examples of workers who had declined employment opportunities in favor of unemployment benefits. Looking ahead, employment agencies expected stronger demand for temporary workers during the next six months, along with improving economic activity. A Maryland contact said that he expected employers to utilize temp help to a greater extent than last year, because of economic uncertainty. A commercial architect in Charlotte also reported a trend toward the use of contract labor instead of hiring full time employees. A source from a management consulting group in Maryland stated that businesses believe that regulation and tax increases are impeding full-time hiring. According to our latest survey, hiring at non-retail service firms picked up briskly in December and average wages strengthened. In contrast, retailers cut jobs and average retail wages flattened. Manufacturing employment edged lower over the last month, while the average workweek held steady; wages increased on pace with a month ago.

Sixth District -- Atlanta (AL, FL, GA, LA, MS & TN)

Sixth District business contacts described economic activity as expanding at a modest pace from late November through December. Reports from most sectors were positive, yet expectations remained guarded. ... Most manufacturers and transportation contacts noted positive activity, especially related to exports. Bankers noted that deposit growth continued to outpace loan demand. Employment growth was positive but tepid across the District as employers remained cautious with regard to hiring. Concerns over increased input costs eased further as most commodity prices leveled off and business' inflation expectations remained in check. Few contacts reported having significant pricing power.

Manufacturing and Transportation
On balance, District manufacturing contacts showed notable improvements in both levels of new orders and production in November after reporting several months of decelerating activity. In addition, more contacts reported improving expectations for future production than in previous reports. Export manufacturers and auto producers, in particular, reported strong activity. Auto producers noted that recent flooding in Thailand would likely have a modest, negative impact on production of some models as several plants in that region were damaged or forced to curtail operations for several weeks.

Reports from transportation industry contacts remained positive in late November and December. Port authorities cited volume increases over last year with notable strength in exports. Trucking firms continued to report increased demand for their services but were struggling to meet customer needs because of a significant shortage of long-haul drivers.

Employment and Prices
Contacts across most sectors continued to report modest hiring activity across much of the District. Most of the hiring has been temporary in nature and tied to seasonal employment. However, there were some scattered reports among healthcare and hospitality contacts in South Florida that hiring was occurring as a result of increased demand or expansion. ... Firms also noted reluctance towards adding new full-time employees because of uncertainty surrounding healthcare reform, a large pool of both over and under qualified applicants, and because productivity enhancements have made several positions redundant.

... In the Atlanta Fed's monthly business inflation survey of firms in the Sixth Federal Reserve District, respondents indicated in December that their inflation expectations for the coming year are 1.9 percent, down slightly from November.

Seventh District -- Chicago (IA, IL, IN, MI & WI)

The rate of growth of economic activity in the Seventh District picked up in late November and December. Contacts were generally optimistic about the economic outlook for 2012, but many also expressed concern about potential weakness in demand from abroad, particularly from China and Europe. Consumer spending increased, while business spending was steady. Manufacturing production increased. Construction was again subdued, although conditions in real estate markets improved slightly. Overall, credit conditions were little changed from the last reporting period. Wholesale price increases slowed, but there was some further pass-through to the retail level. ...

Business Spending
Business spending was steady in late November and December. Contacts reported that inventory levels were generally in-line with sales, although inventory rebuilding continued in the auto industry in the aftermath of the supply chain disruptions earlier in the year. Capital investment plans were largely unchanged, with several manufacturers moving ahead with planned increases in capacity. Hiring remained selective, but the majority of contacts indicated plans to increase employment next year. A staffing firm noted slower growth in billable hours and below-average seasonal hiring in office and clerical positions. However, they also indicated that permanent placement activity continued to increase for industrial positions. Manufacturers again cited difficulties in attracting job candidates with ideal skill sets in technical fields such as engineering. Many of these firms indicated that they would rather postpone hiring a candidate until economic conditions improve to a point that would clearly warrant them doing so.

Manufacturing
Manufacturing production increased in late November and December. Contacts in the manufacturing sector were more optimistic for 2012 given the pace at which their order books are filling through the first quarter. ... Exports also continued to be a source of strength, although slower growth in China and Europe was noted to have held back sales at some firms. In the steel sector, inventories at service centers remain near desired levels, and given the continued strength in the auto, energy, machinery, and mining sectors, steel production was expected to increase in the first quarter of 2012.

Eighth District -- St. Louis (AR, KY, IL, IN, MO, MS & TN)

The economy of the Eighth District grew at a modest pace since our previous survey. Manufacturing activity has increased since the previous report and activity in the services sector has also increased. Residential real estate activity, in contrast, has continued to decline. Commercial and industrial real estate activity has been sluggish, although contacts noted improvement in some areas. Overall lending at a sample of small and mid-sized District banks declined slightly in the three-month period from mid-September to mid-December.

Manufacturing and Other Business Activity
Manufacturing activity has increased since our previous report. Several manufacturers reported plans to open plants and expand operations in the near future, while a smaller number of contacts reported plans to close plants or decrease operations. Firms in the industrial gas, metallic component, automotive parts, primary metal, and clothing manufacturing industries announced plans to increase operations and hire new workers. In contrast, firms in the speaker component, medical equipment, furniture, and dye manufacturing industries announced plans to decrease operations and lay off workers.

Activity in the District's services sector has increased since our previous report. Firms in distribution services, consulting services, and health services announced plans to expand operations and hire new workers. ...

Ninth District -- Minneapolis (MI, MN, MT, ND, SD & WI)

The Ninth District economy grew at a modest pace since the last report. Solid growth was reported in some areas of consumer spending and in the energy and mining sectors. Slight to moderate growth was noted in commercial and residential real estate, professional services, manufacturing, and agriculture. Activity in the construction sector was down from a year ago, while the unexpected lack of snowfall dampened tourism. Labor markets showed continued signs of modest strengthening, while wage increases remained subdued. Prices generally remained level.

Services
Activity at professional business services firms increased since the last report. An information technology consulting firm noted a solid backlog of business for 2012. An architectural firm noted more potential projects up for bid, but said many projects never become reality. An accounting firm reported flat activity over the past month.

Employment, Wages, and Prices
Labor markets showed continued signs of modest strengthening. A pharmacy benefits management company recently announced plans to add 300 jobs in Minnesota. A bank is hiring almost 80 more workers at a call center in South Dakota. Bank directors noted that in the Dakotas and some parts of Montana, employers would hire if they could find workers; some of these employers have started to offer relocation packages as an incentive. According to a recent survey by an employment services firm, 15 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during first quarter 2012, while 8 percent expect to decrease staff. A year ago, 10 percent expected to increase hiring, while 6 percent expected decreases. Minnesota initial claims for unemployment benefits decreased 18 percent in November compared with a year earlier.
...

Tenth District -- Kansas City (CO, NM, MO, NE, OK & WY)

The Tenth District economy expanded at a modest pace in late November and December. Consumer spending softened, with weakness in auto, restaurant, and tourism sales. District manufacturing activity contracted slightly, though factory operators remained optimistic about growth in the coming months. High-tech firms reported continued strong growth, while transportation activity was flat. Residential and commercial real estate conditions remained broadly weak, but contacts expressed increased optimism about sales and prices in the coming months. District banks reported generally steady loan demand and improved loan quality. High crude oil prices buoyed activity in the District's energy sector. Agricultural growing conditions improved, but higher input and production costs constrained farm profits. Rising input costs were reported in several sectors, but few District contacts noted either hiring shortages or wage pressures.

Manufacturing and Other Business Activity
Manufacturing activity contracted slightly during the survey period, but factory operators remained optimistic about the coming months. Activity was broadly weaker, with production, shipments, and new orders lower relative to the prior survey. The weakest sectors were food processing and fabricated metals, while growth in machinery and high-tech manufacturing remained strong. Order backlogs, manufacturing employment, and average hours worked declined. Despite weaker activity, expectations were positive for the coming months for production, shipments, and orders. Transportation firms reported mostly unchanged conditions as activity remained well above year-ago levels. Most high-tech services firms reported sales gains and increased capital spending. Contacts in both the transportation and high-tech sectors reported continued difficulty finding skilled workers.

Wages and Prices
District contacts reported higher prices for both inputs and finished goods, but wage pressures remained confined to select industries and occupations. Manufacturers reported an uptick in input prices in late November and December, but relatively few reported higher finished goods prices. Manufacturers expected further price increases for both inputs and finished goods in the coming months. Most restaurants reported a continued rise in food costs and expected further increases over the next three months. Retailers and transportation firms increased prices in the latest survey period, while construction suppliers reported falling prices due to weak building demand. Few contacts outside of the energy, high-tech, and transportation sectors reported either hiring shortages or upward wage pressures, and most expected little wage pressure in the coming months. Rising employee benefit costs, particularly for health care, remained a concern for many contacts.

Eleventh District -- Dallas (LA, NM & TX)

The Eleventh District economy grew at a moderate pace since the last report. Manufacturing activity was mixed. Contacts said retail sales were robust and automobile sales held steady. Demand for business services was solid, and activity in transportation services rose modestly. Housing and commercial real estate markets continued to improve slightly. Construction activity remained subdued, with apartment construction being the major exception. Financial services respondents said overall loan demand was flat to up slightly. Energy activity slowed somewhat, but respondents expect strong growth in activity in 2012. Agricultural conditions remained weak. Employment levels were mostly unchanged. Price and wage pressures were subdued.

Labor Market
Employment levels were flat to up slightly at most responding firms. Staffing firms continued to note high levels of demand. Energy industry respondents said labor shortages for skilled workers, such as engineers, geologists, and machinists, remained a barrier to expansion. Some producers of food, fabricated metals and transportation equipment noted moderate employment increases, and auto dealers said they continue to look for additional workers. Wage pressures remained minimal, although staffing firms noted modest increases in billing rates for skilled workers. Several firms noted plans to give employees cost-of-living adjustments next year.

Manufacturing
... Respondents in high-tech manufacturing reported that sales grew at a weak to moderate pace since the last report. Sales and prices for DRAM continued to be very weak, while demand and prices for processors were holding up much better. Respondents said that increased demand for mobile devices and data storage should drive up demand for semiconductors by the second quarter of 2012. Respondents noted, however, that economic uncertainty remains very high. ...

Services
Staffing firms continued to report high levels of demand. However, some contacts noted a slight slowdown in activity as some clients delayed hiring until the start of 2012. Direct hires continued to drive business, with particularly strong demand for professional and technical workers. One contact noted a shortage of skilled IT professionals. Outlooks were more optimistic than in the last report, with contacts expecting demand to remain robust or improve next year. Demand for accounting services remained flat, and overall growth this year has been slightly weaker than expected. Legal firms reported steady activity, with continued strength in demand for intellectual property, energy, litigation and some real-estate services and a slight pickup in corporate activity. ...

Twelfth District -- San Francisco (AK, AZ, CA, HI, ID, NV, OR, UT, & WA)

Economic activity in the Twelfth District continued to grow at a moderate pace during the reporting period of late November through the end of December. Upward price pressures remained very modest overall, and upward wage pressures were quite limited. Holiday retail sales reportedly were up over last year's season, and demand edged up for business and consumer services. District manufacturing activity grew further on net. Production activity and sales remained robust for agricultural producers and rose a bit further for providers of energy resources. Activity in District housing markets stayed at very low levels, and demand for nonresidential real estate generally was weak. Reports from financial institutions indicated a slight increase in business loan demand.

Wages and Prices
Price inflation remained quite limited for most final goods and services during the reporting period. Contacts noted recent price increases for selected commodities such as oil and for assorted food items at the retail level, in particular for meat. However, intense supplier competition for existing customers kept a lid on final sales prices for the majority of retail goods and services.

Contacts in most sectors reported that upward wage pressure were modest, although they continued to note rising costs for employee health benefits. Elevated unemployment rates and limited hiring kept compensation gains modest across most regions and sectors, with the exception of significant wage increases for workers with specialized skills in selected manufacturing and technology sectors. Looking ahead, most businesses expect little change in the pace of hiring and wage gains next year.

Retail Trade and Services
... Demand for business and consumer services was mixed but appeared to expand slightly on net. Demand for transportation services remained largely flat, as did demand for professional services such as legal services and accounting. Sales were largely stable on a seasonal basis for restaurants and other food-service providers. For providers of health-care services, demand softened a bit further, as higher emergency room visits were more than offset by declines in inpatient admissions and surgeries. By contrast, sales continued to expand for providers of technology services to businesses and consumers, although the pace of growth continued to slow. District travel activity picked up further, with additional growth in demand reported for the tourism and business segments of the market alike.

Manufacturing
District manufacturing activity expanded further on balance during the reporting period of late November through the end of December. Makers of commercial aircraft and parts reported further expansion in production activity, with ongoing growth in new orders attributed in part to rising demand for fuel-efficient aircraft. Activity remained largely stable for metal fabricators and is expected to remain so for the foreseeable future. For manufacturers of semiconductors and other technology products, demand growth continued to slow, and capacity utilization dipped a bit from existing high levels as companies sought to hold down inventory growth. ... Activity remained exceptionally sluggish for manufacturers of wood products.