WASHINGTON (MNI) – The following is the first of two parts of the
text of the Federal Reserve’s Beige Book survey from the Richmond
district, published Wednesday:

FIFTH DISTRICT-RICHMOND

Overview

Economic activity improved in the District over the last four to
six weeks. The manufacturing sector posted solid gains in December, with
many firms citing strength in both orders and shipments. Retailers in
the District reported a spike in December sales, along with a marked
increase in foot traffic. Modest revenue growth continued at most
services firms. Tourism in the District benefited from an early start to
the skiing season. The banking sector reported moderate improvements in
business loan demand, particularly for industrial equipment. Contacts at
temporary employment agencies stated that demand was flat to up
slightly. While residential real estate activity was mixed, several
commercial Realtors cited a pickup in sales activity, but commercial
construction continued to be weak.

Manufacturing

Manufacturing activity posted solid gains in December, building on
a pickup in October and November. A chemical producer indicated that
shipments continued to improve and he expected his operating rate to be
at 95 percent of capacity over the next year. He also expected exports,
a major part of his recent business gains, to improve further in 2011.
An auto-parts supplier said that demand from auto manufacturers
continued to exceed initial forecasts, resulting in material shortages
and higher supplier costs. A machinery manufacturer noted that his
automotive business remained very strong and he anticipated additional
strengthening in 2011. He pointed out that other industrial businesses
were also picking up nicely. A building materials manufacturer reported
that orders were surprisingly strong compared to three months ago, which
he attributed at least in part to inventory restocking. Survey contacts
reported that prices of raw materials grew at a somewhat quicker rate
than in our last report, while prices of finished goods were little
changed.

Port-related activity in the final months of the year was somewhat
mixed, but remained generally above year-ago levels. A port contact
reported that imports from Asia provided most of December’s
year-over-year increase in volume traffic, while exports held steady.
Another port official stated that exports of both bulk and container
goods remained strong and noted that the weak dollar helped support
commodity exports to Europe. Overall, however, both imports and exports
of commodities and finished goods slowed a bit over the last month. Some
of the slowdown on the import side was attributed to weakness in the
local economies, with retail goods from China accounting for much of the
slowing but apparel goods from South America still holding up well.
However, a container shipper described the volume of his goods both into
and out of ports as “firm and solid, but not booming.” And a railroad
official stated that his port-related freight volumes were running a
little stronger than a year ago, but noted that he did not see the usual
growth in traffic during November over the previous month.

Retail

District retailers reported a surge in December sales, particularly
for groceries, toys and apparel, according to our recent survey. Several
managers at chain discount stores reported solid sales leading up to
Christmas. In addition, retailers indicated that Black Friday sales were
brisk at big-box stores, as media attention helped pull in customers,
but Cyber-Monday also brought a big jump in online sales. One exception
was big-ticket sales, which continued to languish particularly for items
driven by home sales, such as furniture, according to our latest survey.
A central Virginia retailer told us that Black Friday left the local
cluster of small shops “looking like a ghost town.” However, a new
promotion, “Small Business Saturday,” bolstered sales that weekend.
Retail merchants reported that customer buying patterns have changed; a
furniture store owner commented that three out of four of her in-store
customers had first browsed the store’s website or called for product
information. Although snow fell in many areas across the District in
mid-December, most roads were clear on the Saturday before Christmas
and, thus, the weather did not hinder shoppers. Retail price growth
slowed compared to a month ago, according to our latest survey, while
average retail wages grew more quickly.

Services

The District’s non-retail services firms generally improved in
December from a month earlier. Revenues rose at most services firms,
according to recently polled contacts. Demand picked up at trucking
firms, and Virginia airports reported increased passenger travel.
Telecommunications firms also noted stronger revenue growth. However,
demand for healthcare services was little changed since our last report.
Several contacts cited difficulty getting business loans. According to
participants in our latest survey, price growth eased slightly at
services firms, and average wages also moderated somewhat.

-more-

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** Market News International Washington Bureau: 202-371-2121 **

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