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:

Finance.

Loan demand in the District continued to be generally weak. A West
Virginia banker reported that local lending was weak, with no increase
for some time. A South Carolina banker cited a decline in the number of
outstanding loans. Also, several bank officials around the District
noted that, except for multi-family building and refinancing, real
estate lending continued to be quite soft. Several bank officials
attributed weak loan demand to a lack of confidence on the part of
businesses. However, a number of commercial developers noted greater
difficulty getting their loans approved. In contrast, an analyst for a
large bank in the District reported that commercial lending improved
slightly over the last few months, led by small business needs for new
capital equipment. A lending officer in Richmond also noted improvement
in consumer borrowing for autos, home improvement, and debt
consolidation. And several small commercial bankers around the District
stated that they were picking up loans from customers who were
dissatisfied with the service they were getting from large banks. Most
bank contacts stated that interest rates were little changed, and the
quality of loans continued to improve modestly.

Real Estate.

Residential real estate activity softened since our last report,
although a few pockets of strength remained. Several Realtors reported
that sales fell considerably and housing prices had declined from a
month ago. Many agents attributed the drop in sales prices to
short/distressed sales being used as comparables. 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 sales in the $1,500,000 plus range were up 31 percent.
Brokers in Richmond and Charlotte noted that the rental market was
heating up. A builder in Charleston, South Carolina described
residential construction as very weak, with a rise in the average number
of days on the market for new homes, even as the number of homes for
sale declined. In central Virginia, a real estate agent indicated most
shoppers were serious about buying, although foot traffic had slowed
down quite a bit in recent months. He added that, while closed sales
were down, pending sales were up from a year ago.

We received mixed signals from commercial real estate and
construction markets in the District. A contractor in the Baltimore area
reported that commercial permits over the last month were up on a
year-over-year basis for the first time this year. Several contractors
in Virginia and Maryland experienced a small pickup in demand and were
hoping to increase their prices. And, while some architecture firms in
the D.C. area had more signs of stress, one firm reported its best
backlog of orders since the recession. In contrast, another D.C.
contractor said that projects in the area were few, and each had many
bids that were too low for most contractors and their subcontractors to
make a profit. A contact in West Virginia noted a dramatic slowdown in
local leasing activity. In addition, a developer in South Carolina
stated that office and retail space was abundant and no new building was
needed except for very specialized structures, such as medical
facilities. A commercial Realtor in South Carolina also noted that,
although office vacancy rates were high, a significant portion of those
buildings were obsolete.

Labor Markets.

Assessments of labor market activity changed little since our last
report. A representative at a Charlotte staffing and recruiting company
for accounting and finance reported an increase in corporate hiring. A
staffing services contact from Charleston, South Carolina indicated that
2011 has been an exceptionally strong year for temporary placements, but
noted the pool of sufficiently qualified candidates was relatively small
and many applicants were disqualified by drug tests. Several contacts
cited examples of workers who had declined employment opportunities in
favor of unemployment benefits. Looking ahead, employment agencies
expected stronger demand for temporary workers during the next six
months, along with improving economic activity. A Maryland contact said
that he expected employers to utilize temp help to a greater extent than
last year, because of economic uncertainty. A commercial architect in
Charlotte also reported a trend toward the use of contract labor instead
of hiring full time employees. A source from a management consulting
group in Maryland stated that businesses believe that regulation and tax
increases are impeding full-time hiring. According to our latest survey,
hiring at non-retail service firms picked up briskly in December and
average wages strengthened. In contrast, retailers cut jobs and average
retail wages flattened. Manufacturing employment edged lower over the
last month, while the average workweek held steady; wages increased on
pace with a month ago.

Tourism.

A majority of hotel and resort contacts indicated bookings have
been solid since our last report. The manager of a western Virginia
hotel and resort described a very busy Thanksgiving weekend. He remarked
that they were booked full through the Christmas weekend, even though
the unseasonably warm weather limited the number of open ski slopes. A
contact on the North Carolina Outer Banks cited good autumn and early
winter tourist activity, and added that bookings were equal to or better
than a year ago. Owners of vacation rental property there expected a
surge in reservations by early January, when people typically act on
decisions made during the winter holidays. A hotel manager in central
Virginia also reported increased bookings, and a contact at a North
Carolina amusement and recreation venue noted a pick-up in revenues. In
contrast, a hotelier in the Piedmont region of South Carolina indicated
bookings have been flat. In addition, hotel contacts on the Virginia
coast reported that bookings have not increased as expected, owing to
the difficult economy and cuts in federal government spending on travel.
One hotel representative noted that government employees are now sharing
rooms rather than booking individually. Rates were generally unchanged.

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

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