Seventh District Update, January 2015
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: Growth in economic activity in the Seventh District remained moderate in December, and contacts expected growth to continue at a similar pace in 2015.
- Consumer spending: Growth in consumer spending remained moderate. Holiday sales slightly exceeded expectations and light vehicle sales increased steadily.
- Business Spending: Inventories were generally at comfortable levels and capital expenditures and spending plans continued to rise. Hiring increased and contacts expected job growth to continue in the coming year.
- Construction and Real Estate: Demand for residential construction was little changed. Home prices and residential rents both increased, while the pace of home sales slowed. Nonresidential construction and commercial real estate activity increased moderately.
- Manufacturing: The auto, aerospace, and energy industries remained a source of strength, though demand for energy production inputs was expected to slow. Steel production grew steadily, while demand for heavy machinery grew slowly.
- Banking and finance: Credit conditions were little changed on balance. Market volatility stabilized and equity markets moved higher. Business loan demand was steady and consumer loan demand increased in line with expectations.
- Prices and Costs: With the exception of falling energy prices, cost pressures were little changed. Wage pressures continued for skilled workers, but were less pronounced for unskilled workers. Non-wage labor costs changed little on balance.
- Agriculture: Corn and wheat prices rose during the reporting period, while soybean prices were flat. Low crop prices led farmers to focus on minimizing costs instead of maximizing output in 2015, and ethanol margins compressed with the drop in oil prices.
The Midwest Economy Index (MEI) increased to +0.52 in November from +0.36 in October, remaining above average for the eighth straight month. The relative MEI rose to +0.72 in November from +0.35 in October, reaching its highest value in three years. November’s value for the relative MEI indicates that Midwest economic growth was moderately higher than would typically be suggested by the growth rate of the national economy.