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Most Federal Reserve districts indicated that the pace of economic decline has slowed since the last report (June 10), or that activity has begun to somewhat stabilize, according to the Federal Reserve Board's Beige Book, released last week.

Chicago and St. Louis reported that the pace of decline appeared to be moderating, and New York, Cleveland, Kansas City and San Francisco districts reported signs of stabilization. Minneapolis said the district economy had contracted since the last report.

In most districts, overall lending activity was stable or weakened further for most loan categories. In contrast, Philadelphia reported a slight increase in business, consumer and residential real estate lending. Consumer loan demand decreased in New York, St. Louis, Kansas City and San Francisco, stabilized at a low level in Chicago and Dallas, and was steady to up in Cleveland, according to the report.

Residential real estate lending decreased in New York, Richmond and St. Louis districts. Dallas reported steady but low outstanding mortgage volumes, while Kansas City noted that the rise in mortgage loans slowed. Refinancing activity fell dramatically in Richmond, decreased in New York and Cleveland, and maintained its pace in Dallas. Bankers in the New York district indicated no change in delinquency rates in all loan categories except residential mortgages, while Cleveland, Atlanta and San Francisco reported rising delinquencies on loans linked to real estate.

Banks continued to tighten credit standards in the New York, Philadelphia, Richmond, Chicago, Kansas City, Dallas and San Francisco districts; and some have stepped up the requirements for the commercial real estate category, in particular, due to concern over declining loan quality. Meanwhile, Cleveland and Atlanta reported that higher credit standards remained in place, with no change expected in the near term. Credit quality deteriorated in Philadelphia, Cleveland, Kansas City and San Francisco, while loan quality exceeded expectations in Chicago and remained steady in Richmond.

Consumer spending in the early summer remained below previous-year levels in most districts. Boston, Kansas City and San Francisco districts experienced either modest sales increases or less-negative sales results than in recent reporting periods. Philadelphia, Atlanta, St. Louis, New York and Dallas districts cited flat or mixed sales, while sales in the remaining districts remained soft.

Auto sales were modest in Chicago, Minneapolis and Kansas City, while New York, Philadelphia, Cleveland and Atlanta continued to experience subdued sales. The exception was sales of used vehicles, which continued to be strong or were strengthening, according to the districts of Philadelphia, Cleveland, Atlanta, Kansas City and San Francisco.

Residential real estate markets in most districts remained weak, but many reported signs of improvement. The Minneapolis and San Francisco districts cited large increases in home sales compared with 2008 levels. Of the areas that continued to experience year-over-year sales declines, all except St Louis – where sales were down sharply – also reported that the pace of decline was moderating. In general, the low end of the market, especially entry-level homes, continued to perform relatively well.

All districts indicated that labor markets remain slack, with most sectors either reducing jobs or holding them steady. However, Boston, Cleveland, Richmond, Atlanta, Chicago, St. Louis and Minneapolis noted selective hiring, including attempts by some firms to take advantage of layoffs elsewhere to pick up experienced talent, according to the report.

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