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 expanded at a modest pace.
- Consumer spending: Growth in consumer spending edged lower. Some contacts indicated that the end of the payroll tax credit was having an increasingly negative effect on retail sales. Auto sales leveled off but dealers are still optimistic that sales will rise further this year than last year.
- Business Spending:Growth in business spending picked up. Inventory levels increased slightly, and spending on equipment and software and on structures picked up. Labor market conditions improved slightly.
- Construction and Real Estate: Construction and real estate activity increased. Demand for residential construction rose, reflecting both continued strength in multifamily construction and an improving single-family housing market. Growth in nonresidential construction, particularly for smaller retail stores and in the industrial sector, continued to be moderate.
- Manufacturing: Growth in manufacturing production slowed. Mining activity continued to decline. However, contacts indicated that construction equipment distributors and rental companies remain optimistic, pointing to the ongoing recovery in the housing market as a potential source of strength in the second half of the year.
- Banking and finance: Credit conditions remained favorable over the reporting period. Credit spreads and financial market volatility continued to be low. Banking contacts reported moderate growth in business lending, especially to small businesses and for the purposes of expanding and upgrading of facilities.
- Prices and Costs: Cost pressures were roughly unchanged, on balance. Commodity prices were down slightly, and energy prices remained elevated. Wage pressures remained moderate, although several contacts indicated increasing concern over the rising cost of healthcare.
- Agriculture: Cold weather delayed field work during the reporting period, but there was little concern expressed by contacts that planting would be seriously delayed. Corn, soybean, milk, and hog prices decreased while cattle prices moved sideways.
The Midwest Economy Index (MEI) increased to +0.04 in January from –0.10 in December, marking its first positive value since June 2012. The relative MEI, however, decreased to –0.24 in January from –0.18 in December, remaining negative for the second straight month. Estimates of annual growth in gross state product for the five Seventh District states were updated through the fourth quarter of 2012 in this release. The estimate for Indiana was higher than the national rate of growth, while the estimates for Wisconsin, Illinois, Iowa, and Michigan were lower.
The Chicago Fed Midwest Manufacturing Index (CFMMI) increased 0.8% in February, to a seasonally adjusted level of 96.3 (2007 = 100). Revised data show the index was up 0.4% in January. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) moved up 0.6% in February. Regional output rose 5.9% in February from a year earlier, and national output increased 2.4%.