Beige Book and District Indicators
A summary of economic conditions in the Seventh District from the latest release of the Beige Book:
- Overall conditions: Economic activity in the Seventh District expanded more slowly in July and August. Seventh District business contacts expressed concern about the economic outlook, noting lower business and consumer confidence.
- Consumer spending: Retailers reported the back-to-school shopping season got off to a strong start with consumers responding more than expected to the increase in early back-to-school promotions. Vehicle sales edged up in July before leveling off in August.
- Business Spending: Business spending continued at a slow, but steady, pace in July and August. Several contacts noted closely watching inventory and staffing levels due to the uncertain economic climate. Labor market conditions weakened, with hiring still slow and unemployment edging up in the District.
- Construction and Real Estate: Construction activity decreased. Residential real estate conditions remained weak, and commercial real estate conditions were little changed, with vacancy rates steady and some remaining downward pressure on rents.
- Manufacturing: Demand for heavy equipment moderated from its robust pace during the first half of the year and auto production increased in July before leveling off in August. Capacity utilization in the steel industry remained at a record high level.
- Banking and finance: Business loan demand fell while credit supply continued to improve both for large and small borrowers. Volatility in financial markets also increased dramatically in early August, leading to moderately higher funding costs.
- Prices and Costs: Elevated commodity prices continued to put pressure on costs in July and August, and several manufacturers reported extended material lead times, particularly for specialty metals. Wage pressures remained moderate.
- Agriculture: Prices for corn, wheat, cattle, soybeans, milk, and hogs all moved higher. Due to hot temperatures and a lack of precipitation, corn and soybean crop conditions declined markedly in the District.
The Midwest Economy Index (MEI) decreased to +0.03 in July from +0.36 in June, and approached its historical trend for the first time in 17 months. However, Midwest growth continued to outperform its historical deviation with respect to national growth, even as the relative MEI decreased to +0.85 in July from +1.05 in the previous month.
The Chicago Fed Midwest Manufacturing Index (CFMMI) increased 0.5% in July, to a seasonally adjusted level of 84.8 (2007 = 100). Revised data show the index increased 0.3% in June. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) increased 0.6% in July. Regional output in July rose 6.2% from a year earlier, and national output increased 4.2%.