Loan demand remained strong in most parts of the country this summer as brisk demand for commercial credit and consumer loans offset a decline in residential mortgage lending, the Federal Reserve Board said Wednesday.

While higher interest rates slowed mortgage refinancings, robust business expansion drove demand for commercial and industrial loans. Federal Reserve banks in Philadelphia, Richmond, Atlanta, Chicago, St. Louis, and Kansas City reported strong growth in business lending during June and July. Consumer lending, particularly for car loans, was hot in the Atlanta, St. Louis, Kansas City, and Dallas regions.

Those are among the highlights in the latest Beige Book, an economic-conditions report compiled about every six weeks by the 12 Federal Reserve banks to help central bankers set monetary policy. The Federal Open Market Committee meets next on Aug. 24. On the overall economy, the Fed's report was cautiously optimistic.

District reports indicate con-tinued strength in economic activity, though there are widespread reports of supply constraints," the Fed said. Widespread labor shortages persist in virtually every district, but there have been only scattered reports of an actual acceleration in wages."

The Fed raised the federal funds rate by 25 basis points, to 5%, on June 30, and announced it was dropping its bias toward tighter money. Still, economists said they expect the Fed to lift rates by another quarter of a point this month.

I still expect a rate increase, one uptick, said Don Hilber, a corporate economist at Wells Fargo & Co. in Minneapolis. The Greenspan Fed is a cautious Fed.

A move by the Fed is really all but baked in the cake," agreed Wayne Ayers, chief economist at BankBoston Corp.

In addition to financial services, the Beige Book covers wages and labor markets, consumer spending, real estate and construction, tourism, manufacturing, and agriculture.

Residential construction and housing markets remained strong in most districts, though in some areas shortages of materials, labor, and land have constrained home construction and increased costs. Commercial real estate markets also remained tight in most districts.

On agriculture, the Fed said hot, dry conditions, especially in the eastern part of country, damaged some crops while wet weather was hurting farmers in the Minneapolis region.

The Chicago Fed said preliminary results from a survey of ag bankers suggested that farmland values during the second quarter declined in Illinois and Iowa but rose in Indiana, Michigan, and Wisconsin. A majority of these bankers indicated that the pace of farm loan repayments remained below that of a year earlier, while the number of requests for loan extensions and renewals rose," the Fed said.

While the report covered loan demand extensively, credit quality and lending standards -- two issues that dominated beige books last year -- received less attention.

The Federal Reserve banks that did discuss credit quality said it had improved since the last beige book, released June 16. The New York, Cleveland, and Chicago banks noted an improvement in overall credit quality while the Atlanta and San Francisco banks indicated little change. Lending standards were mostly unchanged, though the Federal Reserve Bank of Cleveland did report some tightening.

The Philadelphia Fed said bankers expect trends in lending to continue, but they also foresee a slower pace of overall economic growth that could translate into repayment problems for some borrowers. Some bankers, the report said, believe competition has resulted in an increase in loans to marginally qualified borrowers."

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