WASHINGTON (MNI) – The following is the first of two parts of the
text of the Federal Reserve’s Beige Book survey from the Richmond
district, published Wednesday:
Overview. Fifth District economic activity generally improved since
our last report. Manufacturers’ new orders rose and port activity picked
up, with raw commodities helping to drive exports. Bank officials
reported some increased volume in commercial loan demand, as business
clients restarted projects that had been put on hold. Revenue growth
among non-retail services firms was more widespread in recent weeks,
with notable increases in demand for freight trucking and
tourism-related services. Residential real estate markets edged up,
especially for homes in the lower price range. Commercial leasing
improved somewhat. District labor markets picked up, particularly for
temporary workers in automotive and other manufacturing sectors. On the
other hand, commercial construction remained weak and retail contacts
reported soft sales. Input price growth continued to pick up in both
manufacturing and services sectors and we heard concerns about the
availability of raw materials.
Manufacturing. Manufacturing activity continued to expand at a
solid pace in March. An auto-parts supplier said that orders at his
plant had increased beyond available capacity and he indicated that lead
times had increased due to the scarcity of materials. He mentioned that
levels of inventories were much lower than desired, and in some cases
were nonexistent, causing backlogs of orders for both aftermarket and
service parts. Similarly, a packaging manufacturer told us that vendor
delay in selected raw materials had affected his company, and he
described transportation costs as a growing worry. A manufacturer of
dental equipment reported an increase in business throughout his
company; he noted that the gains included existing and new accounts. In
contrast, several manufacturers who supply products to federal
government agencies attributed the lack of new contracts to the
uncertainties surrounding the budget for fiscal year 2011, but they
expected that business would return to normal once the federal spending
issues are resolved. Several textile contacts reported that uncertainty
in their raw material markets, exacerbated by the turmoil in the Middle
East, had caused prices in petroleum-based products to escalate. More
broadly, raw materials prices continued to move higher, according to our
latest survey.
Port-related activity in the District advanced at a moderate pace,
although several contacts noted that the pace of expansion was slower
than a year ago. Exports of raw commodities remained robust, with
exports outpacing imports at most ports. One official reported strong
export demand for break freight (e.g., autos and construction
equipment), as well as soy beans, scrap metal, paper, and refrigerated
commodities. Another port contact stated that the number of freighters
waiting to enter to port to load.mostly coal and grains.was the highest
he had seen in years. High freight capacity kept shipping rates down,
according to one shipper, but fuel costs were becoming a serious
concern, even when those costs could be passed along. Both truck and
rail have benefited from increased intermodal freight coming through the
ports, according most contacts, but the fuel-cost advantage of rail has
given that mode an edge over trucking.
Retail. District retail sales remained anemic in recent weeks. A
store manager at a discount chain department store in central North
Carolina noted, \Sales petered out after early tax refunds were spent,.
while the store manager at another discount chain store in Virginia
Beach said sales were \slow but steady.. Suppliersf prices rose
rapidly for cotton and petroleum-based fabrics. At a Maryland mall, a
department store manager told us that rising cotton prices were \a big
deal,. preventing acquisition of inventory such as clothing, sheets, and
towels. An analyst for a major hardware store chain stated that sales
were \a little better,. with shoppers spending more but not on major
home improvements. Big-ticket sales weakened, according to surveyed
contacts, primarily in wholesale construction materials and furniture.
Vehicle sales were generally sluggish or unchanged; a dealer in the
Tidewater area of Virginia reported \sales have been stagnant.. Another
dealer reported that he was facing restrictions on ordering certain car
colors, because those paints come from Japan; he also noted availability
problems with car components originating in Japan. Retail prices rose at
a slightly quicker pace in recent weeks; a large grocer indicated that
his wholesale price increases were being passed through to consumers.
Services. Revenues grew more rapidly at services-providing
establishments since our last report. CPAs and tax-preparation services
reported strong seasonal demand. Internet service businesses, as well as
travel-related services providers, also noted higher revenues. A contact
at a building maintenance firm cited a recent uptick in modernization
spending, especially among large hotels, causing increased backlogs at
his company. Healthcare contacts indicated that demand for their
services was generally unchanged in recent weeks, as did
business-to-business services such as management consultants. An
exception was freight trucking; contacts with a nationwide presence
stated that business was strengthening and that they were doing some
hiring. The pace of price increases in the sector edged up, according to
survey responses.
Finance. Banking activity picked up across the District. Most bank
officials whom we contacted noted a marked increase in interest from
business clients, often to restart projects that had been delayed over
the past two years. Several bankers also reported that their lending had
grown from weak levels at the end of last year. A Virginia banker stated
that consumer demand, while still quite soft, had improved, while a
Richmond banker in a relatively affluent neighborhood cited a spike in
equity line usage (often to be used for pre-sale home renovations). Most
commercial bankers reported that small business lending had strengthened
somewhat, with much of the funds going to equipment upgrades and plant
expansions. A bank official in West Virginia reported that auto dealer
inventory financing increased, but overall the bank’s loan pipeline was
slack and he was unenthusiastic about loan demand in general. Reports on
mortgage lending activity were mixed.
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** Market News International Washington Bureau: 202-371-2121 **
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