Economic activity expanded at a measured pace in recent weeks, according to reports from contacts in the twelve Federal Reserve Districts. Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco grew at a modest pace, while St. Louis and Minneapolis indicated a somewhat stronger increase in activity. In contrast, Boston reported a slower rate of growth. Weaker conditions in New York were attributed to widespread disruptions at the end of October and into November caused by Hurricane Sandy. Philadelphia reported general weakness that was exacerbated by the hurricane. However, in the Boston and Richmond Districts, the storm's effects were mostly limited. Contacts in a number of Districts expressed concern and uncertainty about the federal budget, especially the fiscal cliff.

Banking and Financial Services

Loan demand generally was either mixed or slightly stronger across most Districts in recent weeks. Among those noting mixed results, New York reported that demand for consumer and especially commercial and industrial loans weakened, but commercial and residential mortgage demand was steady. Richmond said that a small commercial banker was encountering a slight improvement in overall loan demand but added that consumer loans were unchanged from "meager" levels and small business loans were virtually non-existent. Chicago noted that small business loan demand experienced modest growth, but a decrease in credit demand occurred among middle-market customers. According to St. Louis contacts, overall lending activity was essentially unchanged over the period. St. Louis added that, while credit standards for commercial and industrial loans were largely unchanged, both the demand for these loans and the number of inquiries ranged from moderately lower to moderately higher. Used car loan demand was weak in the Dallas District, although first mortgage and energy-related lending increased. San Francisco cited weak-to-moderate business loan demand, but consumer lending expanded further with the help of auto loans and home mortgage refinancing; however, San Francisco noted that lending activity as a whole was unchanged. Most remaining Districts, including Philadelphia, Cleveland, Atlanta, and Kansas City reported moderate increases in total loan demand. In the Philadelphia District, banks reported widespread bank and ATM closings due to Hurricane Sandy.

Credit standards and credit quality were somewhat improved, on net, since the last report. Chicago, St. Louis, and Kansas City noted that credit standards on most types of loans were unchanged, and Dallas cited a loosening of credit standards, which contributed to very competitive loan pricing. Atlanta cited contacts who reported that underwriting standards had become more restrictive and burdensome since its last report, both in terms of credit scores and information requests. With respect to loan quality, New York reported that delinquency rates increased in the consumer and commercial and industrial segments but held steady in the residential and commercial mortgage segments.

Philadelphia contacts cited moderate improvement. Cleveland and Richmond noted improvements in delinquency rates across consumer and business loan categories. Richmond added, however, that some contacts were concerned that banks were increasing their risk exposure by making longer-term loans in an effort to get higher yields. Kansas City and San Francisco also mentioned moderate improvement in loan quality.

Manufacturing

Conditions in the manufacturing sector were mixed, though on balance, most Districts reported that conditions had weakened since the previous report. The Boston, New York, Philadelphia, Atlanta, Chicago, Minneapolis and Kansas City Districts reported that activity had either slowed or declined somewhat, with most reports leaning toward the latter. Activity was mixed in the Dallas and San Francisco Districts, while reports from the Cleveland, Richmond, and St. Louis Districts were positive. The Boston, Dallas, and San Francisco Districts noted slower growth for information technology equipment, while business activity expanded at high-tech firms in the Kansas City District. Car and auto parts producers in the Atlanta District said that orders softened slightly. Similarly, auto production in the Cleveland District declined somewhat for domestic nameplates but increased for foreign nameplates. In contrast, heavy equipment and auto industries remained sources of strength in the Chicago and the Kansas City Districts. Demand was flat to down for transportation equipment in the Dallas District, and the Philadelphia District indicated that makers of primary metals, industrial machinery, and electronic equipment reported further declines.

Noteworthy gains in manufacturing related to the aerospace industry were reported in the Richmond and San Francisco Districts, while demand for aviation equipment held steady in Dallas. Steel production was down slightly in Cleveland, while the demand for steel in the San Francisco District improved a bit from low levels. Manufacturing contacts from five of the twelve Districts expressed concern about the outlook for 2013, in part, due to the uncertainty regarding the outcome of the fiscal cliff.

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