WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Fifth District, published
Wednesday:
FIFTH DISTRICT-RICHMOND
Overview.
Fifth District contacts provided mixed reports on economic activity
since our last assessment. Retailers reported strengthening in consumer
spending over the last month, and non-retail firms cited increased
activity, despite end-of-June power outages caused by severe storms.
Bookings remained solid according to tourism contacts, even as
vacationers continued to hunt for bargains. Residential real estate was
described as slightly improved overall, although many areas continued to
experience weakness. Additionally, contacts at District ports noted some
improvement in both import and export volumes in recent months. In
contrast, manufacturers reported a marked weakening in orders and
shipments in June, following strengthening earlier this year. Employment
agencies cited a slight slowdown in demand for workers, with the notable
exception of high-skill occupations. Some softening also occurred in
commercial construction in recent months, mostly concentrated on the
government side of the market, with private demand remaining generally
unchanged. Most lenders reported flat or weakening demand for loans;
however, a few bankers noted a pickup in mortgage and small business
lending. Price change was modest, although retail prices increased
somewhat more rapidly than earlier.
Manufacturing.
District manufacturing weakened in June, following six months of
moderate expansion. A manufacturer of industrial machinery reported that
business had slowed during the last month and that major customers were
withholding payments. A producer of gas turbines said that economic
problems in Europe had reduced his companys exports by fifty percent. A
textile producer noted that his company had reduced capacity at a
District plant by approximately twenty percent due to decreased demand
from domestic customers. Backlogs of orders had gone from four weeks to
day-by-day, according to a modular home manufacturer. He added that his
company was not in a position to raise prices to keep up with costs. A
producer of electrical equipment mentioned that orders had decreased
noticeably during the last month, and that several large customers had
scaled back their order projections due to recent economic uncertainty.
In addition, several aerospace manufacturers said that airlines were
making money but were not adding capacity. Our latest manufacturing
survey indicated that prices of raw materials and finished goods grew
more slowly over the past month.
Port activity in the District has continued to improve. Several
contacts reported that both the number of containers and total tonnage
were at or near record levels. One official stated that recent import
growth, led by autos and paper products, has been closing the gap with
the solid pace of export growth at his port. Imports of auto parts and
assembled autos were also helping push some ports to record levels. Port
officials noted that imports of machinery had increased, and exports of
agricultural equipment were showing unusual strength for this time of
year. One port official noted a slight softening in Mays trade
activity, which was not expected to continue. A contact reported that
freight carriers were having limited success sustaining recently
announced rate hikes, due to excess shipping capacity in the industry.
Retail.
Sales among District retailers strengthened since our last report,
buttressed by big-ticket purchases. Spending picked up for
construction-related items, computers, and big-ticket items at home and
garden stores. Sales of automobiles also rose, according most dealers we
contacted. However, shopper traffic generally waned, according to our
most recent survey, and inventory accumulation picked up. Distributors
of non-durable goods and building materials merchants reported improved
revenues since our last report. Grocery wholesalers also saw revenue
gains. The store manager of a large sporting goods establishment noted
that sales were up, even with less traffic. He commented that cotton
prices had declined, although freight shippers continued to apply gas
surcharges. Large areas of the mid-Atlantic lost power for up to a week
following strong storms at the end of June; a retailer in the Richmond
area reported having to place extra orders for generators as his stock
depleted. He noted that bottled water sold out quickly, and sales of
battery operated lights and flashlights rose sharply. Retail prices
increased at a somewhat faster pace since our last report.
Services.
Non-retail services providers reported stable to slightly greater
revenue gains in recent weeks. In our most recent survey, revenue
improvement was strongest among professional, scientific, and technical
firms. A financial services broker in central Virginia cited stable
demand, but also noted a general nervousness among his clients regarding
“the European situation.” Healthcare services providers generally
reported little change in demand. Following the Supreme Court’s
healthcare decision, organizations continued to prepare for upcoming
changes. A restaurant owner stated that the recent power outage cost him
some product, and reservations dropped because his phones were down
for several days. Price increases at services-providing firms slowed in
recent weeks.
Finance.
We received varied reports on loan demand since our last
assessment. Characteristic of many anecdotes, a Maryland banker
described his lending activity as very slow, very flat, with most
loans going to refinancing. A loan officer in North Carolina indicated
that, while his pipeline was slowing, real estate loan applications for
construction projects had improved and even mortgage applications were
beginning to show some life. An official for a large bank noted modest
growth in new loans that were mostly from home buyers and small
businesses, while consumer installment loans were down. A banker in
western Virginia stated that loan demand for capital improvements from
local governments was increasing as federal stimulus funds run out.
Finally, an official for a midsize commercial bank reported that his
market area seemed to be “moving sideways,” with borrowers shifting
among local banks to get refinancing at lower rates. Most bankers
described their lending standards as unchanged, although one lender
noted that competitive pressures for commercial loans had caused some
easing in standards to capture high-quality loans.
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** MNI Washington Bureau: 202-371-2121 **
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