Seventh District Update July, 2013
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 moderate pace in June, and contacts remained cautiously optimistic about growth prospects in the second half of the year.
• Consumer spending: Growth in consumer spending increased in June. Auto sales increased at a faster rate than non-auto retail sales. For non-auto retail sales, contacts noted that high-end retailers and discount stores both continued to fare better than middle market retailers.
• Business Spending: Growth in business spending also picked up in June. Spending on equipment and software increased slightly, as did spending on structures. Labor market conditions continued to improve slowly.
• Construction and Real Estate: Construction and real estate activity continued to increase gradually in June. Demand for residential construction grew steadily, as multifamily construction remained strong and single-family construction continued to improve. Nonresidential construction grew at a modest pace.
• Manufacturing: Manufacturing production increased in June. The auto industry continued to be a source of strength and steel production again grew at a moderate pace. In contrast, demand for heavy equipment remained soft, although contacts anticipated a slight improvement in the remaining months of the year.
• Banking and finance: Credit conditions tightened moderately over the reporting period. Banking contacts cited less demand among their larger clients for leveraged financing, and continued uneven growth in the middle market driven mostly by refinancing of existing debt. In contrast, consumer loan demand increased over the reporting period, particularly for auto lending.
• Prices and Costs: Cost pressures remained mild in June. Commodity prices continued to trend lower. Wage pressures remained moderate, although many contacts again noted rising healthcare and other benefit costs. Some of these higher costs were being passed on to employees.
• Agriculture: Crop conditions improved over the course of the reporting period, with the crop ending the period in better shape than a year ago. Corn, soybean, and hog prices rose, while cattle prices decreased and milk prices were roughly unchanged.
The Midwest Economy Index (MEI) decreased to –0.18 in May from +0.03 in April, and the relative MEI declined to –0.51 in May from –0.10 in April. May’s value for the relative MEI indicates that Midwest economic growth was moderately lower than would typically be suggested by the growth rate of the national economy.
The Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 0.4% in May, to a seasonally adjusted level of 95.8 (2007 = 100). Revised data show the index was down 0.2% in April. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) moved up 0.2% in May. Regional output rose 4.2% in May from a year earlier, and national output increased 2.2%.