WASHINGTON (MNI) – The following is first part of the the text of
the Federal Reserve’s Beige Book survey Third District summary,
published Wednesday:
Economic activity has advanced modestly in the Third District since
the last Beige Book. Manufacturers, on balance, reported increases in
shipments and new orders. Retailers posted sales increases from April to
May. Motor vehicle dealers also indicated that sales increased. Third
District banks reported mostly steady loan volume outstanding.
Residential real estate agents and homebuilders said home sales
increased from March to April but slowed in May. Contacts in the
commercial real estate sector said leasing has picked up, but vacancy
rates have not improved, and construction activity continued to be weak.
Service-sector companies generally reported slight gains in activity.
Business firms in the region indicated that prices of most goods and
services have been steady, although there were increased reports of
rising prices for basic materials, construction-related products, and
shipping.
The outlook among Third District business contacts is positive but
cautious, overall. Manufacturers forecast a rise in shipments and orders
during the next six months, on balance. Retailers expect sales to expand
modestly as long as overall economic conditions and the employment
situation improve. Auto dealers expect the sales rate to increase
somewhat in the months ahead. Bankers expect a slight increase in
lending, mostly in commercial and industrial loans. Residential real
estate contacts expect the pace of home sales to ease following the end
of the federal tax credit for purchases. Contacts in nonresidential real
estate expect leasing to increase slowly, but they do not expect any
near-term gains in construction activity. Servicesector companies expect
continued modest growth for the rest of the year.
Manufacturing
Third District manufacturers reported increases in shipments and
new orders in May, on balance. Compared with April, however, the number
of firms recording rising orders declined somewhat, although the number
of firms recording rising shipments increased. Among the major
manufacturing industries in the region, increases in orders were more
common for producers of lumber and wood products, industrial materials,
and industrial equipment. In contrast, producers of apparel and
electrical equipment reported mostly declines in orders. In general,
manufacturers continued to describe the increase in demand for their
products as slow. One manufacturer said, “Conditions have improved
slightly,” and another said, “Activity is showing signs of improving but
at a slow pace.”
Third District manufacturers expect business conditions to improve
during the next six months, on balance, and the margin of positive
opinions over negative opinions has been practically unchanged since the
previous Beige Book. Among the firms surveyed in May, about half expect
increases in new orders and shipments; a bit over one-tenth expect
decreases. Capital spending plans among area manufacturers remain
positive, on balance, but not strong. About one-fourth of the firms
polled in May plan to increase expenditures for new plant and equipment,
but one-half plan to maintain level spending, and nearly one-fifth
expect to reduce spending.
Retail
Third District retailers reported increased sales in May compared
with April and with May of last year. They said that spring apparel
sales continued to rise and that sales of other lines of merchandise had
begun to move up as well. Although some merchants cautioned that much of
the year-over-year improvement in sales was a consequence of last year’s
poor results, most said the current trend in sales was encouraging.
“It’s definitely a better year than last,” one retailer remarked, “and
we are selectively expanding.” Looking ahead, Third District retailers
expect the sales trend to remain positive as long as overall economic
conditions continue to improve. Third District auto dealers reported a
rise in sales in May compared with April and with May of last year. They
said a shortage of popular models has limited the advance in sales, but
they expect manufacturers to increase production soon. Dealers expect
sales to continue to move up through the rest of the year.
Finance
Total outstanding loan volume at most of the Third District banks
contacted for this report has been virtually level since the last Beige
Book. On balance, commercial bank lending officers said there has been a
small increase in business lending, some gains in residential mortgage
lending, but a decline in consumer lending. Bankers generally reported
that demand for business loans has been rising, although some noted that
use of existing credit lines by many commercial customers has been less
than expected. Contacts in the Third District financial community noted
recent signs of increased interest in business lending by non-depository
financial companies. Most of the surveyed banks indicated that credit
quality measures have shown little change since the last Beige Book,
although some noted slight improvement.
Looking ahead, Third District bankers expect modest loan growth.
They generally expect gains in business lending. In contrast, several
bankers said they expect a falloff in demand for residential mortgages
and continued softness in consumer loan demand. “Individuals are still
deleveraging and looking to build up cash reserves,” one banker said.
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** Market News International Washington Bureau: 202-371-2121 **
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