WASHINGTON (MNI) – The following is the first of two parts of the
text of the Richmond section of the Federal Reserve’s Beige Book report
on current financial conditions released Wednesday:
FIFTH DISTRICT-RICHMOND
Overview. Economic activity in the Fifth District slowed since our
last report. Manufacturing activity pulled back markedly in August,
following a sluggish July, and retail sales weakened. Residential
construction and housing sales declined further, while commercial real
estate activity was mixed. Banking activity was also mixed, with some
commercial lenders citing some improvement but mortgage bankers
reporting continued weakness. In contrast, activity at non-retail
services firms edged up. After earlier improvements, coastal hoteliers
watched their guests flee as Hurricane Irene approached. However, inland
hotel managers reported no change in their solid bookings. Labor markets
were mixed; while temp services reported some improvement, employment
remained nearly flat at manufacturing establishments. Price pressures in
the District edged higher over the last month. Manufacturing prices paid
and received accelerated, while prices in the service sector picked up
slightly. Finally, recent precipitation improved agricultural conditions
in most parts of the District, although Hurricane Irene damaged coastal
crops.
Manufacturing. District manufacturing activity contracted in August
after stalling in July. A producer of modular homes stated that
“business is terrible,” citing this as the worst year in his 40 years in
the business. Several textile manufacturers mentioned that markets for
their products had grown considerably weaker since our last report,
which they attributed in part to declining confidence among customers.
Similarly, a producer of packaging film mentioned that his firm had cut
production over the last three months. Moreover, a manufacturer of
bottled and canned soft drinks noted sales were down sharply from last
year, producing lower-than-normal sales for this time of year. Low-end
cabinet makers reported that their firms continued to struggle with
below-average profits. In contrast, high-end cabinet manufacturers
affirmed that sales continued to improve, albeit at a slower rate than
in the spring. The District manufacturing survey for August revealed
that prices for both raw materials and finished goods grew at a somewhat
quicker pace than a month ago.
Retail. Retail sales mostly weakened in late July through August. A
wide range of retailers indicated that sales had declined in recent
weeks as shoppers searched for bargains, while polled store managers at
general merchandise stores mostly reported little change in revenues. A
manager of a chain of hardware stores noted a decline in sales in recent
months. Also, a contact told us that a Baltimore jeweler had little
business over the last month other than engagement rings. A grocery
executive reported higher revenues, while also indicating that his input
prices had risen, putting pressure on margins. The pace of retail price
increases stepped up from a month ago, according to our most recent
survey.
Services. Non-retail services firms saw an uptick in revenues in
recent weeks, according to most contacts. Stronger consumer demand for
services was reported in telecommunications and healthcare, and a food
distributor in the Baltimore area noted increased demand from locally
owned restaurants and delicatessens. A financial data services firm
reported improving demand from restaurants and retailers in
Maryland and Virginia, although other business services providers
noted negative ripple effects from a slower economy. In contrast, an
executive at a Virginia linen service stated that low bookings at hotels
had reduced demand. Contacts at senior care facilities in Maryland and
North Carolina remarked that expected new residents had postponed their
move-in date while their homes remained on the market. Service sector
prices grew at a slightly faster pace, according to our latest monthly
survey.
Finance. Lending activity was mixed since our last assessment. A
banker in North Carolina stated that loan volume was “pretty good” in
recent months, but added that most of the activity was market share
gains rather than a piece of a growing market. Indeed, several bankers
noted an increase in calls from businesses that were looking for new
banking relationships, but few were ready to make a loan application. An
official at a large bank in the District noted some improvement in loans
for capital spending, but added that most was limited to replacing worn
out capital. A commercial banker in Richmond cited recent cutbacks in
loan demand from several manufacturers. A banker in rural Virginia
described his loan demand as “extremely flat,” with modest gains on the
commercial side offset by weak demand on the consumer side. Several
bankers noted weaker-than-expected mortgage demand over the last month.
Most contacts stated that loan quality continued to improve, but several
bankers indicated that they eased lending terms in order to compete for
quality borrowers.
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** Market News International Washington Bureau: 202-371-2121 **
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