January 13, 2010
Federal Reserve Districts
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Economic conditions in the Third District have been mixed since the last Beige Book. Manufacturers, on balance, reported a modest increase in shipments and new orders. Retailers indicated that sales increased marginally for the holiday shopping period compared with a year ago. Motor vehicle dealers indicated that sales have improved slightly. Third District banks continued to report decreases in loan volume outstanding and further declines in credit quality. Residential real estate agents and home builders said sales were seasonally slow in December following an increase in November. Nonresidential real estate leasing, purchase, and construction activity continued to decline. Business firms in the region indicated that prices of most goods and services have been steady, although reports of higher commodity prices have become more widespread since the last Beige Book. The consensus among Third District business contacts is that business conditions will improve slowly in most sectors during the first half of 2010. Manufacturers forecast a rise in shipments and orders during the next six months, on balance. Retailers expect sales to rise if overall economic conditions improve. Auto dealers expect sales in 2010 to be somewhat above the level in 2009. Bankers expect demand for credit to pick up by mid-year. Residential real estate contacts believe housing demand will rise as spring approaches. In contrast, contacts in nonresidential real estate expect leasing and construction to remain weak through most of the year. Manufacturing Third District manufacturers expect business conditions to improve during the next six months, on balance. Among the firms polled in December, about four-tenths expect new orders and shipments to increase during the first half of the year; about two-tenths expect decreases. Several firms noted that the outlook for future taxes, health-care regulations, and energy costs were negatively affecting their expectations as well as those of their customers. Although the area manufacturers planning to increase capital spending outnumber those planning to decrease capital spending, the positive ratio has not increased since the last Beige Book. Retail Some Third District auto dealers reported improvement in sales in December, although, for most, sales have been roughly steady. Dealers said financing for buyers has become somewhat more available, helping to support the sales rate. Looking ahead, dealers expect total sales in 2010 to slightly exceed sales in 2009. Finance Looking ahead, Third District bankers see slow loan growth starting around mid-year as the economy recovers and loan demand picks up. Until then they expect write-offs and the continuation of stringent credit standards to limit expansion in lending. One banker said that "standards of lower loan-to-value ratios and higher credit scores are being maintained and that will limit loan growth," and another said that "we are focused on preserving capital and minimizing future losses." Real Estate and Construction Nonresidential real estate firms indicated that leasing, purchase, and construction activity continued to decline as 2009 came to a close. They also reported that vacancy rates remained on the rise. Contacts said that building owners have been reducing rents as leases come due for renewals, and tenants have been generally renewing leases for less space and shorter terms. One contact said that "slower general business activity has resulted in many properties not generating cash flow. They are not worth the same amount of money they were worth a few years ago." According to this contact, recent and prospective declines in commercial property values have induced many property owners to withhold them from the market and have deterred many buyers from making purchases. Contacts expect nonresidential real estate markets to remain weak through most of 2010. Prices
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