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

Overview.

District economic conditions improved in most sectors since our
last report. Manufacturing activity expanded further in January and
early February. Retail sales picked up and shopper traffic moved higher.
Revenue growth at services-providing firms slowed, while most tourism
businesses continued to post moderate gains. Likewise, bankers reported
that lending to both residential and commercial customers increased
slightly, although the level of demand remained low. Both residential
and commercial real estate contacts cited moderate gains in sales and
leasing activity during the last six weeks, even though the overall
level of demand was weak. District employment improved somewhat, but
both manufacturers and professional services firms continued to report
problems finding qualified workers. Both manufacturing and services
prices received were up only moderately from our last report, while
prices paid moved significantly higher.

Manufacturing.

District manufacturing activity advanced further in recent weeks.
An automotive parts manufacturer reported that sales remained strong,
and the recent strength of sales had driven an increase in his capital
spending for equipment. A textile producer saw a general pick up across
all sections of his business. He added that his supply of raw materials
was tight, due to the low levels of his suppliers’ inventories at the
end of the year. Similarly, an electrical components manufacturer
described business as still reeling from the spillover effects of the
flooding in Thailand; he stated that his backlog of orders was large
because his suppliers were unable to fill his orders. A furniture
manufacturer cited improvement in the past few months, noting that his
business usually picks up with rising consumer confidence. Moreover, a
fabricated metal producer indicated that business was strong, with
January orders and shipments increasing by double-digit rates over
December levels. According to our recent survey, raw materials prices
grew moderately from a month ago, while finished goods prices grew at a
slightly quicker rate than a month earlier.

Retail.

Retail sales rose and shopper traffic increased in recent weeks.
Big-ticket sales were generally flat, however, according to most
contacts. Auto dealers in South Carolina and Maryland experienced a
slowdown in sales since our last report. In contrast, a car dealer near
Washington, D.C. said that his establishment was hiring more sales
associates to handle the increase in customer traffic and sales. Store
managers at big box department stores across the District indicated that
sales were steady or slightly stronger, and remarked that television
sales blipped up just before the Super Bowl. However, the warm winter
resulted in mark-downs on a large quantity of winter apparel. A central
North Carolina store manager reported that spring and summer apparel had
arrived, but the lingering stock of winter clothing had left little room
on the floor for new merchandise. According to our recent survey, home
and garden retailers reported a pick-up in sales, as did department
store wholesalers. Retail prices continued to rise at a moderate pace
since our last report.

Services.

Revenues grew a bit more slowly overall at services-providing firms
over the last month. Contacts at professional, scientific, and technical
businesses gave us somewhat mixed reports. However, an executive at a
brokerage firm thought that account statements were “looking better.”
Recruiters in the Carolinas reported increased demand for permanent
employees, particularly “technical talent.” An executive at a nationwide
trucking firm stated that freight demand increased over the last month.
Finally, a North Carolina hospital contact reported a major increase in
capital spending to meet new healthcare reform requirements. Prices at
services firms moved up at a restrained pace.

Finance.

Lending to both residential and commercial customers increased
marginally across the District over the last six weeks. However, the
level of demand for loans was often described as weak, and several
bankers were still reporting little change since the end of last year.
While most mortgage applications continued to be for refinancing, loan
officers around the District reported a slight increase for home
purchases. Also, the average size of loans increased. One banker in
Richmond stated that investors, taking advantage of low prices and
interest rates, were a key source of such mortgage lending in his
market. An official for a large bank also stated that his bank remained
very cautious about any consumer loan application, especially for
purchasing a home. On the commercial side, several bankers extended more
merger and acquisition loans. A loan officer for a regional bank said
that his bank had increased its lending for new equipment as well as for
refinancing. A Virginia banker reported a slight uptick in lending for
inventory. However, other bankers stated that loan demand in those
categories was flat. While most construction loans other than for
multi-family buildings remained limited, several bankers reported an
increase in loans for owner-occupied facilities and their furnishings
(mostly to medical professionals). Credit standards remained tight, but
most bankers reported that their lending targets were increasing this
year, even though competition for quality loans was intense.

Real Estate.

Residential real estate activity showed modest improvement since
our last report. Indeed, some contacts suggested that the sector had
moved beyond the bottoming-out phase. For example, lower inventory of
both new and existing homes was reported in the D.C. and Richmond areas,
with some builders beginning to sell and even build again. A source from
North Carolina said that a housing development was successful due to a
“rent-to-own” plan. He added that new construction activity was also
starting to occur in the Research Triangle area. While most Realtors
reported that sales were either flat or up slightly, housing prices
generally continued to decline. Several agents attributed the drop in
sales prices, in part, to short or distressed sales being used as
comparables. They noted, however, that many buyers were avoiding short
sales and foreclosed homes due to often a six to eight month delay in
closings. Most Realtors cited sales in the low-price range as faring
better than sales in the high-price range. An exception, however, was an
agent in the D.C. area, who said that home sales over $1,250,000 were
outperforming all other price ranges. He added that he was starting to
receive multiple offers that were well above listing prices, and he
expected this trend to continue through the spring selling season.

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

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