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

Commercial real estate activity improved slightly since our last
report, especially for office space. A Realtor in the D.C. area reported
that he had been very busy since the start of this year, but mostly with
inquiries that had yet to turn into closed deals. He added that so far
this year government-related activity was down. A Virginia real estate
agent noted that while office building purchases remained weak, some
clients had increased their leasing in hopes of purchasing at a later
time. While office rents have stabilized in most areas of the District,
many agents reported that concessions remained widespread. One Realtor
said that, in order to retain struggling tenants, he had been making
repairs and upgrades that would normally be left to the tenant. Retail
leasing activity remained mixed, with one agent reporting that anchor
stores at large malls were stable, but small boutiques in the same malls
were having difficulty meeting their rent and some were closing. On the
industrial side, data processing and distribution centers were a
positive source of leasing activity, according to several agents around
the District. While industrial demand generally remained weak, several
contacts reported some improvement since the start of the year. An
architectural firm reported an increase in demand related to site
development, suggesting that industrial clients might be planning
construction starts later this year.

Labor Markets.

Assessments of labor market activity were somewhat more upbeat than
in our last report. Several employment agencies stated that demand for
temporary workers had increased and those contacts were optimistic about
future demand. A Baltimore agent noted that the demand for temp workers
had definitely increased, and his company was experiencing a pickup in
recruitment demand for skilled and semi-skilled jobs in the
manufacturing and distribution sectors. He added that the agency was
beginning to see some upward pressure on wages for manufacturing and
distribution center skills, as finding qualified workers remained
difficult. A representative at a Richmond staffing agency reported that
employers were starting to complain that they were not getting enough
qualified applicants. He noted that even with growth in postings,
matching of openings with qualified people continued to be challenging.
According to our latest survey, District manufacturing employment
improved over the last month, while wage gains were slightly lower than
a month ago. Both retail and non-retail services employment picked up in
recent weeks, while the pace of average wages in the service sector
overall increased moderately.

Tourism.

Tourism remained generally strong, with some contacts reporting
further strengthening in recent weeks. A contact on the outer banks of
North Carolina reported a good start to the year and strong vacation
house rentals, with weekend travel up as a result of good weather.
Businesses in that region expect a good tourism season ahead, supported
by such scheduled events as music festivals, bike races, and marathons.
A hotel general manager in the mountains of North Carolina, where
weather was also mild this winter, noted an increase in bookings, and he
expected modest growth to continue through the summer season. Elsewhere,
several ski resorts have been adversely affected by the mild
Mid-Atlantic winter, and a resort in western Virginia will cut jobs to
reduce costs, according to an executive.

Agriculture.

Unseasonably mild temperatures, coupled with below-normal
precipitation held back crop yields in some areas of the District. In
North Carolina, tobacco and cotton yields reached only 50% of historical
averages as a result of damage caused by severe weather last summer. In
South Carolina, dry weather late in the season significantly reduced
what was previously expected to be an outstanding cotton crop. Moreover,
results of our recent agricultural credit survey indicated that farmland
values were slightly below the previous quarter and year-ago levels. In
contrast, ample amounts of rain throughout Virginia, combined with
above-normal temperatures, resulted in above-average yields and
near-record commodity prices for most grain producers. An analyst in the
Commonwealth described 2011 as a solidly profitable year for most grain
producers due to increased export demand.

(2 of 2)

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MAUDS$]