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:

FIFTH DISTRICTRICHMOND

Overview.

Fifth District economic activity strengthened at a tempered pace
since our last report. Manufacturing activity improved, retail sales
increased moderately, and customer demand rose modestly at non-retail
services firms. Reports on banking conditions were mixed, and mortgage
refinancing bolstered consumer lending. Real estate markets also
strengthened, with both residential and commercial contacts reporting an
uptick in activity. In contrast, labor market activity slowed since our
last report. Also, tourism contacts noted a seasonal decline in
reservations. Agricultural conditions were favorable before Hurricane
Sandy arrived, although some farmers in the District were affected by
the storm. Manufacturers’ input prices and finished goods prices rose at
a slower rate, while wages rose more quickly. The pace of service
providers’ price increases edged up and non-retail wage growth slowed.
Price increases slowed at retailers, while wages rose at a faster pace.
Several businesses lost power during Hurricane Sandy, but most returned
quickly to normal operations. In addition, we received reports of
supplier issues and less customer traffic.

Manufacturing.

District manufacturing activity continued to improve modestly. A
manufacturer of dental products reported an increase in orders and
commented that his company would finish the year slightly ahead of 2011.
A manufacturer of organizational products said that he expected
shipments to remain high; he remarked that his company was picking up
market share through consolidation in the industry. A producer of
plastic components noted a pickup in activity after several months of
reduced orders. In addition, an aerospace manufacturer reported that the
company is expanding and is completing a new manufacturing facility.
According to our latest survey, both raw materials and finished goods
prices rose at a slower pace since our last report.

Retail.

Retail contacts reported a moderate acceleration in sales during
late October and early November. Hardware and home and garden stores
noted higher demand for storm-related items ahead of Hurricane Sandy.
Quipped one executive, “Bad weather is good for business.” A store
manager at a department store reported that his sales were stable,
although he is competing with his suppliers for online sales. Car and
light truck dealers gave mixed reports. Dealers in Maryland and West
Virginia saw a drop in sales, however a West Virginia dealer recently
completed expansion at his location to accommodate additional inventory
for ongoing strong sales, and a North Carolina dealer commented that
year-over-year sales were mostly strong across the board. The pace of
retail price increases slowed since our last report.

Services.

Executives at services firms generally reported a modest rise in
customer demand since our last report, especially at professional,
scientific, and technical firms. Additionally, several architectural and
engineering firms indicated that their business strengthened somewhat.
Although financial services firms reported that activity had improved, a
central Virginia broker commented that clients “remained conservative”
and were evaluating alternative plans in case the economy worsens.
Contacts at healthcare organizations noted little change in demand other
than typical seasonal expansion. However, freight trucking firms
reported slight softening in the industry. Service providers noted a
minor pickup in the pace of price increases.

Finance.

Reports on banking conditions varied widely since our last report.
An official for a large bank stated that business borrowing softened
over the last six weeks, while mortgage demand edged higher. A West
Virginia banker said that home equity loans were down, in part due to
consumers rolling that debt into their mortgage. A small commercial
banker in Virginia described demand in general as improving slightly,
but added that consumer loans were unchanged from “meager” levels and
small business loans were virtually non-existent. Several loan officers
noted that an exception to weak consumer demand was auto loans, but one
banker said that even those had weakened in recent weeks. A credit union
loan manager reported that consumer loan applications were up and he
expected modest gains to continue. Overall loan demand strengthened,
according to a northern Virginia banker, mostly for auto loans, home
mortgage refinancing, and equipment purchases. Several officials also
expressed concern that banks were increasing their risk by making longer
termed loans in an effort to get higher yields. Yet, most bankers stated
that the quality of their loan portfolio remained healthy, with few
delinquencies in recent months.

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** MNI Washington Bureau: 202-371-2121 **

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