Recap of the Federal Reserve Bank of Chicago’s 29th Annual Economic Outlook Symposium

Please note: this is a cross-post from the Chicago Fed’s Michigan Economy blog.

On December 4, 2015, the Federal Reserve Bank of Chicago hosted its 29th annual Economic Outlook Symposium (EOS). The EOS allows economists, business leaders, financial analysts, and other experts to gather and share their respective views on the U.S. economy and individual sectors especially important to the Midwest economy. Also, EOS participants are given the chance to submit their respective projections for the year ahead. These projections are subsequently used to come up with a consensus (median) forecast for real gross domestic product (GDP) and related items.

This blog entry is a summary of what was presented at the latest EOS. For a more in-depth look into what was presented, please click here to read the Chicago Fed Letter for the event. Most of the presentations that were delivered during the EOS can be found here.

  • 2015 forecast review: Real GDP growth in 2015 was slightly weaker than expected in the consensus outlook from the previous EOS held in December 2014. Growth in real personal consumption expenditures was slightly higher than anticipated, partly because of stronger than expected growth in light vehicle sales. However, real business fixed investment grew at a significantly slower rate than predicted. New home construction just missed forecasted activity levels. The unemployment rate was lower than originally projected, while inflation (as measured by the Consumer Price Index) came in well below the predicted rate.
  • Outlook for consumer spending: According to Scott Brown (Raymond James & Associates), consumer spending is forecasted to slightly decelerate in 2016 in part because of headwinds from rising energy prices (he expected oil prices to average around $50 per barrel by year-end). The pace of job growth has been strong, but is expected to moderate this year.
  • Outlook for financial services: Brown also noted that credit conditions are fairly tight, but they should ease. The (then-anticipated) interest rate hike in December by the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary policymaking arm—shouldn’t dampen lending for a while, Brown said.
  • Auto industry outlook: According to Yen Chen (Center for Automotive Research), U.S. light vehicle sales and production are expected to peak in 2018 (at around 18.6 million units and 12.2 million units, respectively) before falling slightly. Auto loan debt is expected to surpass student loan debt as the highest form of household debt, excluding mortgage and home equity debt, over the coming years. Meanwhile, Mexican light vehicle production capacity is expected to increase by over 2 million units in the next seven years largely because of lower labor costs (thereby reducing the U.S. share of North American production).
  • Steel industry outlook: Robert DiCianni (ArcelorMittal USA) indicated that U.S. steel consumption is projected to modestly increase in 2016, based on his analysis of several steel-intensive sectors of the economy. For instance, the pace of growth in residential construction is expected to accelerate, while year-over-year growth in nonresidential construction is anticipated to level off. Moreover, both U.S. auto sales and North American auto production in 2016 should be similar to their respective levels in 2015. Global steel consumption is expected to increase slightly in 2016 after decreasing last year. The slowdown in Chinese steel consumption has been a major factor in the decelerating rate of global steel consumption in the past few years.
  • Heavy machinery outlook: Glenn Zetek (Komatsu America Corp.) stated that U.S. demand for earth-moving equipment is at healthy levels, though demand has slowed significantly in states where energy production had been intense over the past few years. Equipment demand for single-family residential and transportation projects is expected to increase in 2016. But heavy machinery demand for nonresidential projects should moderate this year; the prospects for equipment demand to complete such projects look more promising over the next couple of years, as nonresidential fixed investment is expected to move up moderately and equipment usage is near its mid-2000s peak. Equipment usage for mining, energy, and rental needs are predicted to decrease.
  • State and local government debt outlook: According to John Mousseau (Cumberland Advisors), municipal bond yields for the highest-rated securities with maturities greater than ten years are higher than comparable U.S. Treasury bonds—the opposite of what’s normal. Even with Detroit’s bankruptcy and other cities’ and states’ latest financial struggles, municipal bond quality generally remains higher than corporate bond quality. Interest rate increases won’t be terrible for issuers of municipal bonds because historically, municipal bond yield increases failed to match the size of federal funds rate increases.

Conclusion: 2016 economic outlook

According to the latest EOS consensus outlook, U.S. real GDP growth in 2016 is expected to increase slightly above its historical trend. Inventory levels are expected to rise at a slower pace. Residential investment is projected to rise at a strong pace, with slow and steady improvement predicted in new home construction. Growth in business fixed investment should continue at a decent pace, with moderate growth anticipated in industrial output. The dollar is estimated to slightly appreciate versus major currencies, which should increase the U.S. trade deficit to levels not seen in the past decade. Forecasters expect interest rates to rise, but remain at relatively historical lows. The unemployment rate is predicted to edge slightly below current levels. Inflation is expected to move up (closer to the FOMC’s inflation target) as oil prices strengthen slightly.

Seventh District Update, January 2016

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First, a special announcement: As a Midwest Economy blog reader, you may also want to sign up to follow our new Chicago Fed Survey of Business Conditions (CFSBC), which is a survey of business contacts conducted to support the Seventh Federal Reserve District’s contribution to the Beige Book. The Chicago Fed produces diffusion indexes based on the quantitative questions in the survey. Click here to sign up for email alerts and click here to view the latest release.

And now, 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 continued to increase at a modest pace, but contacts were optimistic that growth would pick up some over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending continued at a modest pace, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels. Current capital spending and plans for future outlays both picked up some, but growth remained modest. The pace of hiring remained slow, though more contacts noted plans to increase their workforces over the next 6 to 12 months than in the previous reporting period.
  • Construction and Real Estate: Residential construction edged up, and residential rents, home sales, and home prices increased slightly. Although commercial real estate activity slowed some, it remained strong and broad-based. Commercial rents increased slightly.
  • Manufacturing: Gains in manufacturing production picked up to a moderate pace. Growth remained strong in the auto and aerospace industries and picked up slightly in most other industries.
  • Banking and finance: Financial conditions tightened slightly on balance. Contacts noted greater illiquidity in the bond market, growth in small and middle-market business loan demand slowed slightly, and consumer loan demand was little changed.
  • Prices and Costs: Cost pressures continued to be subdued. Commodity prices remained low, retail prices were little changed, and wage and nonwage cost pressures remained mild.
  • Agriculture: District farm incomes declined as the large harvest pushed product prices down faster than input costs.

The Midwest Economy Index (MEI) moved down to –0.17 in November from –0.14 in October. The relative MEI rose to +0.13 in November from –0.32 in October. November’s value for the relative MEI indicates that Midwest economic growth was slightly higher than what would typically be suggested by the growth rate of the national economy.

The Chicago Fed Survey of Business Conditions (CFSBC) Activity Index declined to –17 from –12, suggesting that growth in economic activity continued at a modest pace in late November and December. The CFSBC Manufacturing Activity Index rose to –20 from –37, and the CFSBC Nonmanufacturing Activity Index fell to –16 from zero.

Understanding the Seventh District’s economic slowdown in 2015

As I noted on this blog in February 2015, 2014 was a pretty good year for the Seventh District. Real District gross state product (GSP) grew 1.2%, the unemployment rate fell from 7.3% to 5.8%, and payroll employment grew 1.5%. The strong finish to 2014 led me to feel quite optimistic for how 2015 would turn out. Unfortunately, it has become increasingly clear that economic activity in the Seventh District has steadily slowed as 2015 has progressed. While the District is certainly not in recession, it is now likely growing at a below-trend pace. In this blog post, I provide evidence of the slowdown and explore how the fortunes of District states’ signature industries have both contributed to and helped mitigate the slowdown.

While we wait for the GSP data for 2015 to be released (due out in June), arguably the best overall indicator we have for 2015 District economic activity is our Midwest Economy Index [1] (I should note here that we will be releasing a new survey-based activity index later this month). Figure 1 shows values for the MEI from 2014 to the present. The index was well above zero throughout 2014, indicating that growth was consistently above trend. Just as 2015 began, the index began to decline, and it entered negative territory in June. The most recent reading of the MEI (for November 2015) indicates that District growth is somewhat below trend.

1-MEI

Some important indicators included in the calculation of the MEI are payroll employment, the regional Purchasing Manager Indexes (PMIs) [2], and per capita personal income. Not surprisingly, they also largely suggest that economic activity in the District slowed in 2015. Figure 2 shows that while District payroll employment grew by an average of 23,000 jobs per month in 2014, the pace of growth slowed to only about 12,000 new jobs per month in 2015. Figure 3 shows the simple average of the five PMIs available for the Seventh District. This average also indicates that economic activity declined notably starting in 2015. As a counterpoint, figure 4 shows that the pace of growth in real personal income per capita has not slowed much in 2015: The annualized growth rate for 2014 was 3.08% and the available data for 2015 (through Q3) indicate that the annualized growth rate has only slowed to 2.94%.

2&3-Emp&PMIs

4-RIPC

While the preponderance of evidence suggests that Seventh District economic activity slowed in 2015, it turns out that the experiences of individual states within the District have been quite different. Figure 5 shows the sum of the contributions to the MEI for the eastern states of the District (Indiana and Michigan) and the sum for the western states of the District (Illinois, Iowa, and Wisconsin). Growth in 2014 was above the District’s long run trend in both sub-regions, but the western states outperformed the eastern states. The pace of activity in the eastern states picked up steadily through the first half of 2015 and has since slowed to near the District’s trend. This experience contrasts quite notably with that of the western states. Activity in these states began to slow at the end of 2014 and continued to slow until the middle of 2015, at which point conditions improved some.

5-WEMEIs

One approach to understanding the different experiences of eastern and western District states is to do an economic base analysis for each state. Such an analysis identifies the industries whose employment is especially concentrated in a state (and therefore likely quite important for the state’s economy) by calculating a location quotient (LQ). A location quotient is the ratio of the share of employment in an industry in a state to the share of employment in an industry in the U.S. as a whole:

Formula

As an example, if the machinery industry’s share of employment in Michigan is 1.3% and the machinery industry’s share of employment in the U.S. is 1%, then the location quotient is 1.3, and we say that the machinery industry is 30% more concentrated in Michigan than in the U.S. as a whole.

For this blog post, I calculate location quotients for each state for each of the 3-digit NAICS industries that are available from the Bureau of Labor Statistics’ (BLS) payroll employment survey.[3] I then consider the industries in each state with a location quotient greater than 1.5. This approach successfully identifies the signature industries one typically thinks of for each state in the District. For example, the analysis picks up Michigan’s auto industry, Indiana’s steel industry, and Illinois’s, Iowa’s, and Wisconsin’s machinery industry.

Table 1 shows the high-location quotient industries for Indiana and Michigan, along with the percentage of overall employment the industry represents and the year-over-year employment growth rate of the industry from November 2014 to November 2015. With the exception of the primary metals industry (where employment fell by 0.93%), employment grew for all of Indiana’s high-LQ industries and was solid for most of them. The story is even clearer in Michigan, where the auto industry dominates. Employment in the transportation equipment industry grew 4.59% over the past year.

To summarize the overall growth of District states’ flagship industries, I calculate the average growth rate for the industries, weighted by their relative size. Employment in Indiana’s flagship industries grew 1.35% over the past year, while employment in Michigan’s flagship industries grew 3.38%. Thus, even though the pace of growth in economic activity slowed in Indiana and Michigan in the second half of 2015, it was still a good year for both states.

6-Table 1

The story is more mixed for the states in the western part of the District (table 2). Machinery (and the fabricated metal producers who support them) has not faired well in the past year: Illinois, Iowa, and Wisconsin all saw notable declines in machinery and fabricated metal employment (with the exception of Wisconsin’s machinery employment, which was flat). However, Iowa and Wisconsin were helped by strong growth in other flagship industries (food products in both Iowa and Wisconsin and finance in Iowa). Illinois has few other flagship industries to help it, though it’s worth noting that Chicago has fared much better than downstate Illinois because of its concentration in business services and finance. Average employment growth for Illinois’s high-LQ industries was dismal (-2.04%), while growth was solid for Iowa’s (1.58%), and slow for Wisconsin’s (0.73%). Thus, although some flagship industries have done well in the western states in the District, the struggles of the machinery industry appear to have put quite a damper on their economic performance.

7-Table 2

So we see that the overall slowdown in the District in 2015 was not a shared experience across District states. The eastern states (Michigan and Indiana) did notably better than the western states (Illinois, Iowa, and Wisconsin) and these differences are relatively consistent with the performance of states’ flagship industries. What does the future hold for these flagship industries? At the moment, it’s hard to find much evidence that there will be a significant reversal of fortunes in 2016. The auto industry is likely to continue to benefit from steady growth in the U.S. economy and low gasoline prices, while the machinery industry is likely to continue to suffer from weaker global growth and depressed commodities prices (which hurt demand for both mining and agriculture machinery).

That said, while flagship industries certainly play an important role in a state’s economy because of all the related industries that support them, there are still many industries that are not closely related to them. For example, Iowa’s contribution to the MEI has been negative for most of 2015 (not shown), likely because of the struggles in the farming industry (see the Chicago Fed’s latest AgLetter for more details). The converging trends in the MEI (figure 5) suggest that these other factors are also making their presence known.

[1] The MEI is a weighted average of 129 Seventh District state and regional indicators measuring growth in nonfarm business activity from four broad sectors of the Midwest economy: manufacturing, construction and mining, services, and consumer spending.

[2] The PMIs included in the index are for Chicago, Iowa, Detroit, and Milwaukee.

[3] Data are not available for all 3-digit NAICS industries because there is not sufficient employment in some industries in some states for the BLS to be able to cover them accurately.

Seventh District Update, December 2015

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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 continued at a modest pace in October and early November.
  • Consumer spending: Growth in consumer spending continued at a modest pace, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels. Current capital spending slowed and now appears in line with modest plans for capital outlays. The pace of hiring slowed notably, particularly for non-auto-related manufacturers, and hiring plans remained modest.
  • Construction and Real Estate: Demand for residential construction increased moderately, though home sales and the pace of home price growth have slowed. Commercial real estate activity continued to increase moderately, while commercial rents increased slightly.
  • Manufacturing: Manufacturing production growth slowed to near zero in October and early November. Although the auto industry continued to experience solid gains, most other industries saw limited growth or reported declines in activity.
  • Banking and finance: Credit conditions were little changed on balance. Loan demand from large and middle market firms fell; however, small business lending ticked up. Consumer loan demand increased slightly, with multiple contacts citing strong demand for auto loans.
  • Prices and Costs: Cost pressures continued to be subdued. Steel prices declined, while the prices of other primary metals and energy remained low. Most retailers reported stable pricing and wage pressures were mild.
  • Agriculture: District corn and soybean harvests exceeded expectations, and most agricultural commodity prices fell.

The Midwest Economy Index (MEI) moved up to –0.14 in October from –0.17 in September. The relative MEI increased to –0.23 in October from –0.34 in September. October’s value for the relative MEI indicates that Midwest economic growth was somewhat lower than what would typically be suggested by the growth rate of the national economy.

Upcoming Chicago Fed conference: Labor Issues Facing Agriculture and the Rural Midwest

On November 17, 2015, the Federal Reserve Bank of Chicago and the Upjohn Institute will hold a conference to explore labor issues affecting agriculture and the rural Midwest. The conference will be preceded on November 16, 2015, by the performance of a play that deals with immigrant experiences in agriculture, followed by a policy discussion. Visit www.chicagofed.org/events/2015/annual-agricultural-conference for more details and to register. Feel free to contact David Oppedahl at 312-322-6122 with any questions about these events.

Concerns about population losses, work force vitality, employment skills, health issues, and economic growth that lags that of urban areas have persisted for years in the rural Midwest and throughout the U.S. This has led to much discussion of a rural/urban divide in the nation (see an example from Governing).

Manufacturers often complain that a skills gap prevents them from expanding and hiring additional workers. Agricultural businesses also face challenges to meet their labor needs, and sometimes rely on immigrant workers. There are implications for rural areas not only due to a shortage of U.S. workers, but also to matters related to worker compensation (see, for instance, a recent Department of Labor ruling). Moreover, non-farm employment can be vital for the livelihood of many agricultural families, even as farm employment remains a key component of rural income in the Midwest. In addition, health insurance coverage continues to be a critical factor for farm households and rural workers.

At the upcoming conference, experts from academia, industry, and policy institutions will discuss work force trends, labor challenges, and ways to improve living standards in the rural Midwest. The goals of the conference include understanding key issues related to rural and farm labor; describing the effects of labor challenges in rural areas; examining policies that affect rural and farm jobs; and discussing possible strategies to position the midwestern economy and agriculture for a prosperous future.

In the final panel discussion of the day, moderator Bill Testa will provide an overview of trends in skilled worker location. As skilled workers, especially younger workers, gravitate toward large metropolitan areas and their central cities, smaller metropolitan areas, towns, and rural areas increasingly struggle to develop, attract, and retain the skilled work force they need for existing and new businesses and investment. And from an individual worker’s perspective, the choice to work outside of a large labor market area may result in a narrower set of career and skills acquisition opportunities, as well as a loss of wage income. The panelists will address: (1) how communities can best address these challenges; and (2) how workers can choose a smaller town or rural location without unduly sacrificing career opportunities and high wages.

 

Seventh District Update, October 2015

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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 slowed to a more modest pace in late August and September, but most contacts expected growth to pick up somewhat over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending slowed to a more modest pace over the reporting period, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels, while many manufacturers indicated an undesirable increase in inventories. The pace of hiring and capital spending remained moderate, but many contacts reduced plans for future hiring and capital expenditures.
  • Construction and Real Estate: The pace of residential construction was unchanged. Residential rents, home prices, and home sales were also little changed, though residential rents increased modestly. Commercial real estate activity again increased moderately.
  • Manufacturing: Growth in production slowed to a more modest pace in spite of strong growth in the auto and aerospace industries. Capacity utilization in the steel industry remained low and sales of heavy machinery remained weak.
  • Banking and finance: Credit conditions were little changed. Financial market volatility declined, but remains high. Business and consumer loan demand increased slightly.
  • Prices and Costs: Cost pressures remained subdued. Energy and steel prices declined, while the prices of other primary metals remained low. Most retail prices changed little and wage pressures remained mild.
  • Agriculture: Corn and soybean crop conditions improved some as the harvest began, while the profitability of crop operations ranged from substantial losses to break-even. Wheat and milk prices moved up, while hog, cattle, and egg prices moved down.

The Midwest Economy Index (MEI) ticked down to −0.12 in August from −0.11 in July. The relative MEI declined to −0.23 in August from −0.06 in July. August’s value for the relative MEI indicates that Midwest economic growth was somewhat lower than what would typically be suggested by the growth rate of the national economy.

Seventh District Update, September 2015

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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 was moderate in July and early August, and most contacts expect activity to rise at a similar pace over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending continued at a moderate pace. New and used vehicle sales continued to be strong.
  • Business Spending: Growth in business spending remained moderate. Overall, inventory levels were comfortable, though steel service center inventories were slightly elevated. The pace of hiring and capital spending remained moderate.
  • Construction and Real Estate: Residential construction ticked up, while residential rents, home prices, and home sales all increased slightly. Demand for nonresidential construction edged up and commercial real estate activity again increased moderately.
  • Manufacturing: Growth was again moderate, as the auto and aerospace industries continued their strong advance. Capacity utilization in the steel industry remained low. Sales of heavy trucks grew steadily, while sales of heavy machinery remained weaker.
  • Banking and finance: Credit conditions were little changed. Financial market volatility was higher, while credit spreads were largely unchanged. Business loan demand weakened some, while consumer loan demand was up slightly.
  • Prices and Costs: Cost pressures were subdued. Energy prices remained low, as did prices of steel and other primary metals. Most retail prices changed little and wages pressures remained mild.
  • Agriculture: The condition of the corn and soybean crops was uneven across the District, with record yields possible in some areas and low yields likely in others. Corn, soybean, and wheat prices declined. Hog prices were flat, dairy moved up, and cattle prices moved down. The recovery from the bird influenza has been slow, pushing egg prices up again.

Led by declines in the construction and mining sector, the Midwest Economy Index (MEI) decreased to −0.12 in July from a neutral reading in June. The relative MEI declined to −0.08 in July from +0.12 in June. July’s value for the relative MEI indicates that Midwest economic growth was slightly less than what would typically be suggested by the growth rate of the national economy.

Preview of the upcoming Summit on Inner City Economic Development in Detroit

In a recent blog, I shared my observations about Pittsburgh’s efforts to revitalize its urban core. Then, I analyzed the extent to which Pittsburgh’s turnaround can serve as a model for Detroit as its city leaders and stakeholders look to revitalize the city’s urban core. While Detroit has begun to replicate the efforts of other cities, such as showcasing the city’s riverfront with the Detroit RiverWalk and collaborating with regional leaders and stakeholders, overall its efforts lag those of other Rust Belt cities. The relatively sluggish pace of Detroit’s efforts to revitalize its urban core are also reflected in the slow development of the city’s business clusters, including new business formation. Meanwhile, other parts of the Rust Belt have advanced the development of their respective business clusters, such as West Michigan’s office and institutional furniture cluster and Pittsburgh’s advanced materials and energy clusters.1

Policy professionals, researchers, and other experts will gather in Detroit for a two-day summit–“Revisiting the Promise and Problems of Inner City Economic Development,”—at the Renaissance Center on September 15th and the Federal Reserve Bank of Chicago—Detroit Branch on September 16th. The summit will look at new research and best practices in the field of urban revitalization. It is sponsored by the W.E. Upjohn Institute for Employment Research, the Initiative for a Competitive Inner City (ICIC), the Federal Reserve Bank of Chicago, Economic Development Quarterly, and Sage Publications. For those interested in attending, there is no registration fee but advance registration is required here.

Day 1 will focus on what’s currently happening in Detroit, with an introduction by the Chicago Fed’s Regional Research staff and a bus tour of Detroit provided by the Chicago Fed’s Community Development & Policy Studies group. The tour will highlight some of Detroit’s successes and challenges in its effort to revitalize its urban core and how the three levers of growth—business environment, clusters, and individual firms—are promoting and complementing the efforts of Eastern Market and Midtown Detroit. Eastern Market’s food cluster is expanding in part because of greater economic growth within the city of Detroit. Part of that growth is originating from the development of an innovation district along Detroit’s major boulevard, Woodward Avenue, which is helping to draw young entrepreneurs to work and live in Midtown Detroit. In addition, the tour will illuminate some of what Detroit must still overcome on the path to renewal. The first day ends with a presentation by Detroit Free Press writer John Gallagher, who will share his thoughts about the city.

The second day of the summit will feature two keynote addresses. ICIC Founder and Chairman Michael Porter will look back on his research of clusters and their competitive advantages in inner cities. Later on, Matthew Cullen, President and CEO, Rock Ventures LLC, will provide insight into how his firm has helped contribute to Detroit’s recent surge in economic development. Other featured speakers include Carol O’Cleireacain, Deputy Mayor for Economic Policy, Planning, and Strategy, City of Detroit. Sessions on the second day will examine new thinking on the competitiveness of inner cities and opportunities for business in the inner city.

Seventh District Update, July 2015

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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 was moderate in late May and June, with the pace of advance appearing to be a bit slower than during the previous reporting period.
  • Consumer spending: Growth in consumer spending continued at a moderate pace. Non-auto retail sales slowed in late May but strengthened in June. Auto sales strengthened further, leading dealers to revise up their expectations for 2015.
  • Business Spending: Growth in business spending remained moderate. Overall, inventory levels were comfortable, though steel service center inventories remained elevated. Both the pace of capital spending and hiring was little changed.
  • Construction and Real Estate: Demand for residential construction was steady. Home sales, home prices, and residential rents all increased modestly. Nonresidential construction activity also increased modestly, while commercial real estate activity increased moderately.
  • Manufacturing: Growth was again moderate, as the auto industry continued its strong advance. Capacity utilization in the steel industry picked up some, but remained low. Sales of heavy trucks grew steadily, while sales of heavy machinery remained weaker.
  • Banking and finance: Credit conditions were little changed. Financial market volatility was slightly higher, while credit spreads declined marginally. Business and consumer loan demand both were little changed on balance.
  • Prices and Costs: Cost pressures were subdued. Energy prices remained low, as did prices of steel and other primary metals. Most retail prices changed little and wages pressures remained modest.
  • Agriculture: Widespread rains damaged crops and restricted fieldwork. Corn, soybean, and wheat prices rose as yield expectations declined. Both higher feed costs and lower prices for hogs, milk, and cattle hurt livestock producers’ margins. Egg prices remained elevated, as bird flu continued to hurt production.

Led by a slight decrease in service sector growth, the Midwest Economy Index (MEI) moved down to +0.17 in May from +0.28 in April. The relative MEI fell to +0.55 in May from +0.86 in April. May’s value for the relative MEI indicates that Midwest economic growth was somewhat higher than would typically be suggested by the growth rate of the national economy.

Seventh District Update, June 2015

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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 April and early May, and contacts expected growth to continue at a similar pace over the next six to twelve months.
  • Consumer spending: Growth in consumer spending was moderate. Non-auto retail sales were steady, while auto sales continued their strong pace.
  • Business Spending: Growth in business spending remained moderate. Overall, inventory levels were comfortable, though steel service center inventories remained elevated. Both the pace of capital spending and hiring picked up some.
  • Construction and Real Estate: Demand for residential construction ticked up. Home prices and residential rents were up slightly. Nonresidential construction activity was somewhat higher, while commercial real estate activity grew at a strong pace.
  • Manufacturing: Growth was again moderate. The auto and aerospace industries remained a source of strength and capacity utilization in the steel industry increased some. Sales of heavy machinery and heavy trucks again grew slowly.
  • Banking and finance: Credit conditions continued to improve. Financial market volatility remained low and credit spreads declined slightly. Business loan demand ticked up, but consumer loan demand flattened with the exception of mortgage originations.
  • Prices and Costs: Cost pressures were little changed overall. Energy and metals prices were up slightly, but remained low. Retail prices were little changed and wage pressures increased slightly.
  • Agriculture: Corn and soybean planting proceeded rapidly, exceeding the pace of last spring. Higher output pushed down milk prices further, hog prices increased some, and cattle prices remained high. Poultry flocks were hit hard by bird flu, raising egg prices.

The Midwest Economy Index (MEI) ticked down to +0.29 in April from +0.33 in March. The relative MEI edged up to +0.95 in April from +0.90 in March. April’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.



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