WASHINGTON (MNI) – The following is the Beige Book section on the
Federal Reserve’s Fifth District, published Wednesday:

FIFTH DISTRICT – RICHMOND

Fifth District economic activity increased at least moderately in
most sectors since our last assessment. Manufacturing continued to
receive upbeat news from contacts, with many reports of strengthening
orders and shipments. Services firms reported mostly stable-to-improving
demand, after several months of declines. In addition, bankers noted
slight improvements in most areas of lending, and tourism picked up, led
by gains in the Baltimore area. Labor markets experienced an increase in
both temporary and permanent hiring, especially in the manufacturing
sector. Harvests around most of the District were successful, and farm
income projections were revised higher. On the other hand, there were a
few weak indicators. Activity in both residential and commercial real
estate markets was soft, although house-shopping traffic improved in
some areas. Retail activity overall continued to contract, with declines
of some big-ticket items. Price pressures were generally restrained.

Manufacturing

Manufacturing activity picked up in October and November after a
slight easing in September. An auto-parts supplier in the District said
that auto manufacturers continued to increase orders. He also mentioned
that capital expenditures, which had previously been on hold, were
recently approved. A packaging manufacturer reported strong demand, and
a machinery equipment industry spokesman said that orders, led by autos
and aerospace, have been rising this year from very low levels.
Similarly, a custom fabricator reported a slight increase in incoming
orders and anticipated a significant upswing in early 2011. A
manufacturer of fuel pumps and dispensers described his sales as good
this year, but feared that tough economic conditions will limit sales
next year. Moreover, a plastics producer stated that, even though
October was a high-volume month, he was not expecting further
improvements until early next year. Survey contacts reported that raw
materials and finished goods prices rose at a somewhat quicker pace than
in our last report.

Retail

District retail sales generally declined in recent weeks, although
pockets of strength were reported. Several department store managers
reported disappointing sales since our last assessment and their outlook
for the holiday season was restrained. However, in the days leading up
to Black Friday, a few contacts reported an increase in foot traffic and
sales. Big-ticket sales were generally soft, with mixed reports from car
and light truck dealers. While an automobile dealer in South Carolina
attributed falling sales to the high unemployment rate in his area, a
central West Virginia dealer said that he had ‘a real good month.’ A
recent boat show in Maryland drew over 90,000 visitors; sales were
reported as robust and financing at low rates was widely available. In
addition, grocery sales grew more rapidly than a month ago, according to
survey contacts, and an executive at a chain hardware store in central
Virginia told us customer traffic remained steady, but the amount
customers were spending increased. Inventories flattened over the last
four weeks, according to most respondents in our November survey, and
retail prices rose moderately.

Services

Business activity at service-providing firms stabilized or
accelerated since our last report. Most owners and managers at
restaurants across the District reported an uptick in revenues, and
several investment professionals said business had rekindled at their
firms. In Richmond, a contact at a financial services firm said his
clients appetite for risk was returning. Even with improved client
confidence, however, his firm was not able to increase profit margins.
Education and healthcare contacts noted little change in revenues during
recent weeks. ‘Steady, close-to-budgeted demand’ for services was the
report from an executive at a North Carolina healthcare system. A CPA in
central West Virginia said the local economy remained pretty stagnant,
but demand at his firm was steady. Prices at services-providing firms
edged up slightly, according to survey findings.

Finance

Lending activity in the District continued to post modest gains
from weak levels since our last assessment, but there were also many
areas with no improvement. Refinancing continued to dominate activity in
the mortgage market, although several bankers around the District cited
marginal improvements in new home loans. However, most loans were for
homes in the low price range and often associated with foreclosures or
short sales. Several loan officers for large regional banks reported a
pickup in consumer lending activitymostly for home improvement or
purchasing and repairing bargain-priced homes. A banker in the Baltimore
area stated that commercial loan demand started to increase in recent
weeks, noting that many loans were to support new business, and a lender
in South Carolina provided equipment financing to several local
manufacturers. Financing of new commercial construction remained
dormant, but a banker in the Baltimore area cited a modest increase in
condo and apartment construction loans. Credit quality continued to
improve, according to most bankers, even as non-performing loans and
loan losses remained above normal. However, a loan officer in the
Richmond area noted that delinquencies were moving back to normal
levels.

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

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