Seventh District Update
A summary of economic conditions in the Seventh District from the latest release of the Beige Book and from other indicators of regional business activity:
- Overall conditions: Economic activity in the Seventh District continued to expand at a slow pace in October and early November.
- Consumer spending: The pace of consumer spending, while still moderate, increased slightly. Overall, retail sales surpassed expectations, which contacts attributed to promotions and generally improving consumer confidence.
- Business Spending: Growth in business spending moderated further. Inventory investment continued to slow along with capital spending on equipment and structures. Labor market conditions improved slightly from the previous reporting period.
- Construction and Real Estate: Construction activity continued to increase at a slow, but steady pace. For the first time in several years, homebuilders reported new land development projects were underway and contacts also noted some signs of improvement in commercial real estate conditions.
- Manufacturing: Manufacturing production decelerated. Capacity utilization in the steel industry decreased and specialty metal manufacturers also reported weaker orders. The heavy equipment and auto industries however, remained sources of strength.
- Banking and finance: Credit conditions continued to gradually ease. Credit spreads and financial market volatility remained low, and asset quality steadily improved. Banking contacts reported modest growth in small business loan demand.
- Prices and Costs: Cost pressures were little changed. Retail food prices eased, on balance, and retailers indicated that discounting and promotions for non-food items increased some. Wage pressures remained moderate, but nonwage costs increased as many contacts again cited higher healthcare costs.
- Agriculture: Much of the District reported higher yields than had been expected during the previous reporting period, reflecting in part timely local rains, later planting, and irrigation. Nonetheless, the drought still cut the District’s output of corn and soybeans substantially relative to last year.
Although the Midwest Economy Index (MEI) improved to –0.43 in October from –0.55 in September, it remained negative for the fourth consecutive month. The relative MEI decreased to –0.14 in October from –0.05 in September, primarily on account of declines in the Midwest’s manufacturing sector.
The Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 1.2% in October, to a seasonally adjusted level of 92.1 (2007 = 100). Revised data show the index was down 0.6% in September. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) moved down 0.8% in October. Regional output rose 5.9% in October from a year earlier, and national output increased 2.0%.