WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Fifth District, published
Wednesday:

Overview. Economic activity in the Fifth District improved modestly
since our last assessment. Retail sales were sluggish, held back in part
by weak big-ticket sales. Growth at services firms slowed, although
tourism businesses reported strong demand. Bankers said that lending
grew slowly, and much of the activity was refinancing. Residential real
estate agents noted encouraging signs of improvement in housing sales,
while commercial Realtors described leasing and construction activity as
mostly flat to moderately up. Manufacturing reports were mixed, with
auto and other transportation equipment-related producers continuing to
do well, while other producers faced unchanged or weakening demand.
District hiring activity varied, with some businesses reluctant to hire
or unable to find qualified workers. Recent rainfall aided newly planted
fields, but excess moisture in some areas delayed planting. Price
increases both paid and receivedgenerally slowed.

Manufacturing. We received mixed signals on manufacturing activity
since our last report. According to our latest survey, new orders and
shipments were essentially unchanged in May, following solid expansion
during the previous month. A producer of metal extrusions reported that,
although his sales slowed a bit in April, demand in May picked up again.
However, a producer of gas turbines said that economic problems in
Europe led to fewer exports, and he expected to lay off ten percent of
his employees this summer. Several manufacturers cited decreased
government spending as the primary reason for recent cancellations of
orders. A manufacturer of aircraft engines expected that cuts in defense
spending would soon weaken government demand for his products, but
private sector orders remained robust. A spokesperson at another
aerospace manufacturing firm said that her business was expanding
nicely, and she attributed the increase to strengthening demand for
helicopters and gyroplanes. According to our latest survey, both raw
materials prices and finished goods prices grew at a somewhat slower
pace than a month ago.

Retail. Sales were tepid in recent weeks, after an early Easter
pulled some holiday sales into March. Stores reported good Mothers Day
sales, although foot traffic was lighter than normal for many retailers.
Shopper traffic was unchanged since our last report and big-ticket sales
declined, according to a recent survey. A central Virginia retail
representative reported little stability in the market as customers
exhibited “yo-yo spending” (i.e., up one month, down the next).
Accordingly, retailers managed inventories tightly and were reluctant to
make capital investments. A South Carolina grocer observed that
customers were buying special sale items at different stores, rather
than shopping at one store. In contrast, an executive at a chain of
hardware stores noted that sales had improved at a slow-but-steady pace
since the start of the year. Discount department store managers
generally reported a pick-up in sales. For a few discounters, however,
the opening of new competition kept sales flat. Automobile sales were
also flat. Most home improvement retailers reported a decline in sales
in recent weeks. Retailers’ prices rose at a somewhat slower pace since
our last report.

Services. Revenues advanced more slowly at services firms since our
last report. A building contractor stated that consumers were still
avoiding big projects, but were increasingly looking for “more than a
coat of paint,” as homeowners improved their current homes rather than
trying to sell. Several services providers, particularly architectural,
engineering, and telecommunication firms, reported stronger revenues. A
healthcare provider in Central Virginia reported that demand for
in-patient services had flattened out a bit recently, partly due to an
absence of influenza cases, but out-patient services were still growing.
Several healthcare institutions reported that they were continuing
capital spending projects, especially on computer technology, to meet
federal requirements and guidelines. Non-retail services providers
reported a mild up-tick in the rate of price increases.

Finance. Lending activity increased modestly across most segments
of the market. On the commercial side, several bankers cited markedly
higher volumes of small business loan applications and increased loan
approval rates. One banker attributed the gains to growth in inventory
and capital improvement spending, while another said that small
businesses were making renovations to commercial properties. However,
several loan officers around the District saw little improvement in loan
demand from the retail sector. On the consumer side, mortgage demand
continued to improve, although refinancing dominated much of the
lending. Other bank officials noted solid gains in home improvement
loans, with one banker citing an increase in use of equity lines of
credit. In contrast to the more upbeat reports, several officials at
mid-sized banks described loan demand as flat in recent months, with
little new business in the pipeline for either mortgage or commercial
loans.

Real Estate. Residential real estate activity generally improved
since our last report. A Realtor in the Richmond area, who noted some
improvement in April, said that May would be a big indicator of whether
the spring market just came early, or if gains would continue into June.
He was cautiously optimistic that real estate activity was moving in a
positive direction. A source from the Hampton Roads area of Virginia
said that housing-related activity in that area had seen recent signs of
improvement, adding that properties were being snapped up as investors
became more confident of a housing recovery and home sellers became more
realistic with their prices. Moreover, several brokers in Asheville and
Raleigh, North Carolina stated there was an up-tick in housing sales.
However, an agent in the Winston-Salem area of the state mentioned that
there was still stagnant growth in some areas, and that homes for sale
in that area were out of balance with area incomes. Several Realtors
reported that sales picked up in recent weeks, while housing prices
dropped. Most Realtors indicated that sales were concentrated in the
low-to- mid-price range.

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

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