Federal Reserve Balance

U.S. Federal Reserve Beige Book: Richmond District (Text)

The following is the text of the Federal Reserve Board’s Fifth District -- Richmond.

Business activity in the Fifth District was unchanged or slightly improved in most sectors since our last assessment. In the service sector, retail activity on balance remained soft during the last month, while non-retail services firms reported flat or slightly increasing demand. Tourism to mountain and ocean destinations picked up in recent months. Banking activity improved moderately, but gains did not extend to commercial real estate. Indeed, both commercial Realtors and construction contractors reported that activity was little changed from weak conditions in past months. In contrast, however, residential Realtors indicated that low-to-medium priced homes across the District were generally lifting the market, if only slightly, since our last report. The manufacturing sector slowed over the last month, with several contacts citing softer demand. Finally, employment agencies specializing in temporary workers noted modest improvements in demand, with several adding that recent uncertainty about the direction of sales was causing their clients to postpone hiring full-time employees.

District manufacturing stalled in July after exhibiting moderate gains in June. A producer of coated steel reported that orders had declined during the entire second quarter. He noted that typically the second and third quarters were the strongest for his company, but that he was not seeing any improvement in either June or July. Similarly, a furniture manufacturer indicated that business had slowed in recent months, particularly for furniture collections for the home. Several firms reported that working capital constraints, coupled with the inability to pass through raw material increases, had limited their ability to expand their business. In addition, a few contacts mentioned that automotive deliveries had slowed and material costs had increased recently as a result of the production interruptions in Japan . Our latest manufacturing survey indicated that prices of both raw materials and finished goods grew more slowly over the last month.

Fifth District ports continued to post moderate gains since our last report. With shipping moving into its peak season, however, several port authorities expressed concern that recent import gains were not as strong as expected. One official attributed the apparent sluggishness in May and June to retailers ordering earlier than normal last year (due to uncertainty over shipping rates), making year- over-year comparisons misleading. Another contact stated that the surge in trade that occurred over the last year was not sustainable, and also added that the weakening of the overall economy was affecting import volumes. A shipping official noted that many businesses were reluctant to build inventory and some retailers seemed to be holding back their orders, adding to a sense of “choppiness” to shipping activity. However, exports of coal and other commodities continued to do well, according to a port official, and auto imports were described by one contact as “amazing,” with automakers scrambling to rebuild depleted inventory. Several contacts expected shipping activity to pick up later this year, in part due to an increase in empty containers being shipped to Asia--presumably to be refilled for the Christmas holiday season.

Economic Crisis Watch: **Yellow Alert** Federal Reserve Balance ...

"The estimated weekly remittances to U.S Treasury as interest on Federal Reserve notes or, in those cases where the Reserve Bank’s net earnings are not sufficient to equate surplus to capital paid-in, the deferred asset for interest on Federal Reserve notes. The amount of any deferred asset, which is presented as a negative amount in this line, represents the amount of the Federal Reserve Bank’s earnings that must be retained before remittances to the U.S. Treasury resume. The amounts on this line are calculated in accordance with Board of Governors policy, which requires the Federal Reserve Banks to remit residual earnings to the U.S. Treasury as interest on Federal Reserve notes after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in." The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to reflect an accounting policy change that will result in a more transparent presentation of each Federal Reserve Bank's capital accounts and distribution of residual earnings to the U.S. Treasury. Although the accounting policy change does not affect the amount of residual earnings that the Federal Reserve Banks distribute to the U.S. Treasury, it may affect the timing of the distributions. Consistent with long- standing policy of the Board of Governors, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed weekly to the U.S. Treasury. The distribution of residual earnings to the U.S. Treasury is made in accordance with the Board of Governor's authority to levy an interest charge on the Federal Reserve Banks based on the amount of each Federal Reserve Bank's outstanding Federal Reserve notes. Effective January 1, 2011, as a result of the accounting policy change, on a daily basis each Federal Reserve Bank will adjust the balance in its surplus account to equate surplus with capital paid-in and, in addition, will adjust its liability for the distribution of residual earnings to the U.S. Treasury. Previously these adjustments were made only at year-end. Adjusting the surplus account balance and the liability for the distribution of residual earnings to the U.S.

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