WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Fifth District summary, published
Wednesday:

Overview. District economic activity was generally described as
either mixed or modestly improving since our last report. While
manufacturing remained a bright spot, the pace of activity reported in
our last assessment appears to have eased somewhatparticularly among
firms supplying the housing sector. Port authorities reported a pick-up
in activity, led by recent increases in import volumes. Bank lending to
businesses improved moderately, while home mortgage lending varied
widely around the District. Tourism also strengthened. In addition,
local labor markets posted modest gains, with temp agencies reporting
gains especially from the manufacturing sector. On a weaker note,
residential real estate agents and contacts at other services firms
described activity as mixed. Finally, commercial real estate agents and
retailers reported generally softer market conditions, but both sectors
cited at least some pockets of improvement.

Retail. Retail sales weakened since our last report. Several auto
dealers reported that light vehicle sales dropped, and a North Carolina
medical devices supplier said payers were trying to negotiate lower
reimbursement rates on durable medical equipment. In addition, a contact
at a large home and garden chain reported that impulse buying fell, and
that home remodeling purchases had scaled back dramatically as consumers
“splurged small.” Overall, according to our District survey, big-ticket
purchases and shopper traffic plummeted. Many District retailers
indicated that inventories continued to decline in recent weeks.
Merchants increasingly cut jobs, and retail prices advanced only
slightly faster since our last report.

Services. Contacts and survey respondents at non-retail services
firms reported mixed activity during the past four weeks. For example,
several businesses indicated that their revenues had contracted, while
others reported an uptick, with the caveat that they are not seeing
significant strengthening in their markets. Several contacts at
professional, scientific, and technical firms said their businesses
experienced increased demand for services since our last report, while a
financial advisor at an investment services firm said conditions were
“stable.” Several healthcare-related businesses cited little change in
demand in recent weeks, but a West Virginia nursing home administrator
said the economy and healthcare reform put downward pressure on his
business. Many respondents to our service sector survey reported that
price increases slowed at services firms.

Manufacturing. District manufacturing continued to expand in June
and early July, albeit at a slower pace than a few months ago. Most of
our District survey respondents reported that growth in their shipments
and new orders had moderated, while several contacts noted that their
employment edged higher. A parts supplier reported a significant
increase in demand from auto manufacturers, with business being well
ahead of expectations. In addition, a tire producer informed us that his
customers had depleted their inventories, which caused him to expect an
increase in orders soon. Moreover, a contact at a textile plant
commented that his company had built inventory in anticipation of
continued price increases for synthetic fibers. He noted, however, that
his customers continued to maintain low inventory levels, with current
sales higher than replenishment rates. In contrast, a furniture
manufacturer noted that his company had reduced its workforce by half
due to weak conditions in the housing market. Similarly, a manufacturer
of exterior doors for residential housing indicated that the previous
uptick in demand for building products had now vanished.

Port activity in the District picked up since our last report. One
contact stated that total shipping volume at his port was back to
pre-recession levels. While exports had been improving over much of this
year, he noted that imports were now increasing as well. A contact that
handles a variety of roll-on cargo stated that about two-thirds of the
recent gains in port activity were being driven by imports. At least
some of the import gains were attributed to inventory restocking.
Several port officials noted that shipping lines were attempting to
raise rates.

Finance. Banking activity over the last six to eight weeks improved
modestly, but gains were uneven. For example, several bankers noted an
increase in commercial lending, although one lender stated that
commercial lending had weakened. Contacts noted that increased lending
went to support high-tech and export activity, as well as auto dealer
inventory. An increase in merger and acquisition activity was also noted
by several sources. One banker reported a marginal improvement in small
business lending, while an analyst for a large bank reported a
retrenchment in consumer borrowing.

A small community banker stated that the banks own auto loans had
edged down as other banks returned to the market, increasing loan
competition. Reports on home mortgage lending varied, with some bankers
reporting improvements and others still experiencing declines. A loan
officer at a community bank stated that refinancing was a significant
portion of his mortgage lending activity in recent weeks. Most contacts
stated that credit quality was slowly improving from a weak base,
although one source noted that delinquencies on both residential and
commercial loans were still “off the charts.”

Real Estate. Reports from residential Realtors varied across the
Fifth District. Several contacts reported that home sales slowed since
the expiration of the federal governments tax credit program. However,
other contacts indicated that sales in the upper-middle price bracket
were still moving, at least in some areas of the District, while one
agent noted that single-family homes in suburban neighborhoods were
experiencing the most activity. Another agent reported that houses
priced below $150K remained the best sellers, due to more
foreclosure-related and short sales. A Realtor in Richmond reported that
the metropolitan market in recent weeks did not meet the companys
expectations in July. An agent for a major realty chain noted that the
average number of days on the market for most homes remained high.

Commercial real estate markets continued to weaken since our last
report, with at least one contact not expecting improvements until well
into the future. According to one contact in North Carolina, vacancy
rates in most metro areas remained relatively high and were still rising
in some areas. Vacancy rates were particularly high in the retail sector
in both Richmond and Baltimore, according to several agents. Retail and
office leasing activity was reported to be improving in Columbia, S.C.,
as well as in parts of North Carolina. Commercial rental rates in parts
of North Carolina were being driven down by property owners fears that
things could get worse, and an agent stated that retail rental rates
remained negotiable in Richmond. One contact stated that new
construction financing was “not going at all.”

Tourism. Tourist activity increased since our last report. Along
the coast, contacts reported that bookings over the July 4th holiday
weekend were much stronger than a year ago. A hotelier from Virginia
Beach noted that his hotel was filled to capacity, even though room
rates had jumped dramatically. A contact in Myrtle Beach said that
visitation was up 10 to 12 percent in recent weeks compared to a year
ago, but consumer spending was still below pre-recession levels. He
attributed some of the increase in visits and spending to tourists
changing vacation plans from the Gulf to the eastern seaboard. Moreover,
an analyst from the Outer Banks of North Carolina indicated that
restaurants were full and sales at gift shops were flourishing. Managers
at mountain resorts reported that holiday reservations were the best in
years and that time shares were rented for most of the summer. They
noted, however, that although tourists were spending slightly less on
food, they were spending considerably more on recreational activities
and merchandise.

Labor Markets. Labor market activity picked up slightly in recent
weeks, according to most contacts. Several firms reported adding jobs
for at least a third straight month. A services firm increased its
hiring due to rising demand, but several retailers reported job cuts.
Temporary employment agents reported slow, but steady increases in
hiring by small or mid-sized businessesespecially in manufacturing. For
example, a contact at an automotive plant told us that temporary
employment workers had been hired to help with the increase in
production. One temp agent noted an increase in the number of employees
being hired on a permanent basis by his clients. Increased demand for
temporary workers was reported for a diverse set of industries,
including warehouse and distribution centers, manufacturing plants, and
pharmaceutical firms. Most respondents to our manufacturing and service
sector surveys indicated that wages were little changed since our last
report.

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

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