Fed Beige Bk ? Richmond ? Conditions Improved, Mfg Advanced ...

WASHINGTON (MNI) ? The following is the Federal Reserve Beige
Book?s latest Fifth District economic assessment, published Wednesday:

Overview

Business conditions have improved in the Fifth District economy
since our last report. Manufacturing activity continued to advance,
although somewhat more slowly than at the beginning of the year. While
trade activity increased, imports improved somewhat more slowly than
exports. Retail sales activity rose sharply, as shopper traffic
increased and big-ticket sales strengthened. Services-providing firms
also recorded solid revenue growth in recent weeks, and unseasonably
warm weather bolstered tourism. Bankers reported modest gains in most
types of lending; however, other than refinancing, the amount of
mortgage lending remained relatively weak. Nonetheless, Realtors noted
an increase in sales of existing homes, and contractors reported an
uptick in new home construction. Commercial real estate activity also
improved moderately across most segments of the market, although
contractors reported fewer government-related new construction projects.
Hiring activity picked up, especially for temporary workers. Finally,
the pace of price increases rose marginally over the last month,
according to our latest manufacturing and service sector surveys.

Manufacturing

Activity expanded moderately over the last month. However,
shipments, new orders, and employment all grew at a somewhat slower pace
since our last report, with several contacts citing the increasing cost
of petroleum.based products as a major factor affecting their business.
An automotive parts manufacturer reported that customer orders remained
elevated, but he was concerned that orders and sales could weaken if
recent high fuel prices persist. A contact at a lumber mill stated that
he had seen improvement in both sales and output prices since the
beginning of the year. In contrast, a paper producer said that his firm
was experiencing a significant decline in business, adding that most of
his employees were currently on a thirty hour workweek. A textile
manufacturer said that synthetic raw material prices were soaring,.
but that it was difficult to pass these increases through to customers.
According to our recent survey, prices of both raw materials and
finished goods grew at a somewhat quicker pace than a month ago.

Port activity in the District continued to strengthen since the end
of last year, with exports slightly outperforming imports. Several port
authorities reported that roll-on, roll-off stock was up. Indeed,
several officials noted that autos and automotive parts were key
products boosting both imports and exports. Exports of bulk goods,
including coal, wood by-products, and agricultural goods, continued to
be robust. An executive at a large container carrier noted that downward
pressure on shipping rates persisted due to excess capacity. Rising fuel
costs were cited as causing serious problems for both land and ocean
shippers. However, most port contacts expected that exports and imports
would continue to strengthen.

Retail

Retail sales strengthened markedly since our last report. Gains
were led by rising shopper traffic and an uptick in big-ticket sales,
while inventories flattened. A store manager in West Virginia remarked
that unusually warm weather had caused sporting goods sales to pick up
earlier than normal. Additionally, home improvement sales were up at
most of the merchants polled in our latest survey. A contact at a home
improvement chain noted particular strength in sales of kitchen
remodeling components. Higher gasoline prices led to freight surcharges,
according to several contacts. Sales of both domestic and foreign cars
remained strong, as consumers replaced aging vehicles and looked for
better fuel-efficiency. Consumers continued to bargain intently, with a
North Carolina furniture retailer commenting that margins were ?the
tightest they?ve ever been.? A contact at a Virginia food chain remarked
that customers were purchasing more selectively, as retail prices
accelerated. However, a home appliance retailer noted that consumers
absorbed significant price increases.

Services

Revenues expanded at service-providing firms, despite concern about
the rising cost of gasoline. Contacts at construction-related service
firms reported an increased volume of business, and sales activity
picked up at several advertising firms and travel services. Information
technology firms also noted greater demand, particularly from the
healthcare industry. Stronger demand allowed some trucking firms to
raise prices to offset fuel cost increases. However, a trucking
executive indicated that the shortage of drivers remained a serious
concern. A manager of a restaurant chain in Maryland noted that people
were eating out more, but area restaurants still needed to increase
their use of incentives to compete for customers. Finally, a recent
survey indicated that the pace of price change inched up at
services-providing firms.

Finance

Modest improvements in lending activity were widely reported since
our last assessment. Officials at several large banks reported slow
upward movement in commercial lending, particularly to small businesses
that were financing inventory and new equipment. Several community banks
around the District noted an increase in commercial lending for office
and retail space. A lending officer in Richmond reported further
strength in consumer borrowing, especially to meet home improvement and
auto financing needs. Many bankers stated that mortgage financing
remained weak, with the exception of home refinancing. However, several
bankers from across the Districted noted a slight pickup in new home
loans beyond seasonal norms. Competitive pressures among banks remained
intense, putting downward pressure on rates. Several bankers reported
that they were offering easier terms to attract new commercial
borrowers. Loan quality and payment timeliness continued to improve,
according to most bank officials.

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

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