All posts by Thomas Walstrum

The Fiscal Performance of Seventh District States in the 2000s

In a recent Chicago Fed Letter, Thom Walstrum examined the fiscal performance of Illinois’s state and local governments beginning in the late 1980s. His analysis showed that since at least the late 1980s, Illinois’s governments (as a whole) have consistently run a budget deficit. His analysis also revealed that the degree of overspending (or alternatively, undertaxing) by Illinois was greater than that of the average U.S. state and that growing pension liabilities have contributed significantly to Illinois’s budget deficit.

In this blog post, we expand the analysis to the other states in the Seventh Federal Reserve District.[1] Specifically, we document the expenditure and revenue patterns of District states since the early 2000s and compare them to those of the typical U.S. state.[2] We also examine the effect of the Great Recession on the fiscal performance of District states because it plays an outsized role in the overall fiscal performance of certain states over the period we examine.

As in the Fed Letter, we combine the expenditure and revenue data for state and local governments because states differ in which activities they fund at the state or local level. Also, as in the Fed Letter, to account for differences in the sizes of states’ economies, we report expenditure figures as percentages of gross state product (GSP) and revenues.[3]

Our analysis yields a number of interesting results. First, we find that the size of state and local governments (in terms of spending as a percentage of GSP) varies quite a bit among District states. Second, we find that the fiscal performance of state and local governments (in terms of spending as a percentage of revenues) also varies quite a bit. And finally, we find that though the Great Recession had a large negative impact on the fiscal performances of all District states, Illinois and Wisconsin were especially affected, primarily because the value of their pension systems’ assets declined sharply.

We first look at the size of state and local governments in District states in terms of spending as a percentage of GSP. Figure 1 shows total government expenditures as a percentage of GSP for the average U.S. state and for Seventh District states during fiscal years (FY) 2002–13. Indiana is consistently the lowest spender during this span, and it is well below the U.S. average. Iowa and Illinois are also below the national average for most of this period, though they catch up to it by FY2012. In contrast, Wisconsin’s spending is roughly the same as the typical U.S. state. Michigan tracked the national average closely until FY2007, but has been consistently above average since then. Figure 1 also shows a ramp-up in spending across all states in FY2010–11. This is the largely the result of states spending federal funds received through the American Recovery and Reinvestment Act.

fiscalperformance_figure1

Table 1 summarizes figure 1 by taking the average of the percentages over FY2002–13. It also shows a breakdown of average spending by category. We now discuss the unique features of each state’s spending (as a percentage of GSP).

  • Illinois’s total spending was below the U.S. average largely because of lower expenditures on education services and social services (and income maintenance). That said, Illinois spent more than the typical U.S. state on its insurance trust and pension liability increases, both of which are compensation for government workers, including those providing education and social services.
  • Indiana’s total spending was below the U.S. average because of lower spending on most categories, though it spent a particularly low amount on pension liability increases compared with other states.
  • Iowa’s total spending was below the national average (in spite of above-average spending on education and social services) because of below-average spending on its insurance trust and pension liability growth.
  • Michigan’s spending was above the U.S. average largely because of higher spending on education services and its insurance trust.
  • Wisconsin’s spending was quite close to the U.S. average; compared with the typical state, Wisconsin spent more on education services and its insurance trust, but less on pension liability growth.

fiscalperformance_table1

Next we look at each District state’s fiscal performance, which we define as total expenditures as a percentage of total revenues. We interpret lower percentages as better performance. It is important to note here that fiscal performance is independent of the overall size of a state’s governments, because all that matters is that the governments have enough revenues to cover their expenses. While small governments generally do not require the level of revenues that large governments do, small governments could still perform worse than their large counterparts if their revenues are not high enough. Figure 2 shows the time trends for expenditures as a percentage of revenues for each District state and the typical U.S. state. Two features of the figure stick out: First, with the exception of Illinois, District states are quite close to the U.S. average in terms of spending as a percentage of revenues. Second, while most states’ governments were hurt by the Great Recession (FY2008–09), Illinois’s and Wisconsin’s were hit particularly hard, while Indiana’s was not hit that bad.

fiscalperformance_figure2

The first row of table 2 summarizes figure 2 by taking the average of the percentages over FY2002–13. Illinois and Wisconsin spent more out of their revenues than the typical U.S. state during this period, while Indiana, Iowa, and Michigan spent less. Because FY2009 was such an anomaly on account of the Great Recession, we also calculate the averages excluding it (second row). This changes the story quite a bit for Wisconsin governments, which then perform better than the U.S. average. (With this adjustment, Michigan governments perform slightly worse than the U.S. average.)

Table 2 also shows the percentage of total revenues that each spending category represents (calculated excluding FY2009). Examining expenditures in terms of revenue, as opposed to GSP, tells a different story for several states.

  • Illinois’s total expenditures percentage is well above the U.S. average. Spending out of revenues on education is above that of the typical U.S. state, though it remains below that of the other District states. Illinois also spends more than the national average on public safety, environment and housing, interest on general government debt, its insurance trust, and pension liability growth.
  • Indiana’s total expenditures percentage is below the U.S. average. It spends less than the national average on transportation, utilities, its insurance trust, and pension liability growth.
  • Iowa’s total expenditures percentage is not only below the U.S. average but also the lowest among District states. Notably, its spending on public safety, utilities, its insurance trust, and pension liability growth is lower relative to the national average.
  • Michigan’s total expenditures percentage is slightly above the U.S. average. Its education spending is the highest among District states and markedly higher than that of the typical U.S. state. But its spending on transportation, utilities, and pension liability growth is lower than the national average.
  • Wisconsin’s total expenditures percentage is below the U.S. average. While its expenditures for education, public safety, and its insurance trust are above average, its expenditures for pension liability growth are below average.

fiscalperformance_table2

Table 2 shows that Illinois and Wisconsin were hit hardest by the Great Recession. After excluding FY2009, Illinois’s spending as a percentage of revenue decreases 6 percentage points and Wisconsin’s decreases 11 percentage points. These decreases are much larger than those for other District states and the typical U.S. state, which range from 1 to 4 percentage points. What is behind the substantial differences in fiscal performances in FY2009? We found that the source was not changes in expenditures, but changes in revenues. Table 3 shows revenues as a percentage of GSP for the typical U.S. state and states in the Seventh District. The first row is the average value during FY2002–13 excluding FY2009, the second row is the value for only FY2009, and the third row is the difference between the two. All states had lower-than-normal revenues in FY2009, but Illinois and Wisconsin fared particularly poorly. To understand why, we calculated the difference between FY2009 values and the average values of the other fiscal years for all revenue categories. General revenues were actually higher in FY2009 for the typical U.S. state and all District states. The source of the revenue declines was states’ insurance trusts. Most states saw the value of the assets in their insurance trusts fall during the Great Recession, and such declines are treated as negative revenues in the U.S. Census’s accounting framework. The insurance trust funds for Illinois and Wisconsin fared particularly badly in FY2009, which is why their expenditures-to-revenues ratios were so high over the period FY2002–13 (see the first row of table 2). That one bad year made a huge difference in Wisconsin’s overall fiscal performance over the period FY2002–13.

fiscalperformance_table3

Our exploration of the size and performance of District state governments reveals a surprising number of differences among them. There are states with relatively small governments that perform poorly (Illinois) and well (Indiana) and states with relatively large governments that perform poorly (Wisconsin) and well (Michigan). Some states were hit much harder than others during the Great Recession (compare Wisconsin and Indiana), and Wisconsin’s terrible performance in FY2009 shifted the state from being a good fiscal performer to being a bad one over our study period (FY2002–13). The most important reason for the differences in fiscal performance across states is differences in pension system management. Illinois would be closer in performance to the national average if its pension spending matched the national average, and Wisconsin would be better than average if its pension system’s assets hadn’t lost so much value during the Great Recession.

[1] The Seventh Federal Reserve District (which is served by the Chicago Fed) comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin. In this blog post, we analyze the entirety of each state that falls within the District.

[2] Unlike for the analysis of just Illinois, we are limited to the period after 1999 because we do not have pension system data for other states before 2000.

[3] For more details on the methodology, see the Fed Letter. Note that data on pension liabilities for the Seventh District states, excluding those for Illinois, come from the Board of Governors of the Federal Reserve System.

Our First Look at Job Growth in the Seventh District in 2016—New Estimates Using Early Benchmarking

Last week we received the December 2016 report from the U.S. Bureau of Labor Statistics’ (BLS) state payroll employment survey (also known as the Current Employment Statistics, or CES), so it’s our first opportunity to look at how well the Seventh Federal Reserve District[1] did in 2016. The recent report is not the final word on job growth in 2016 because the data will eventually be benchmarked against more complete data, primarily those from the Quarterly Census of Employment and Wages (QCEW).[2] Data for January through September 2016 will be benchmarked by the BLS in the middle of March of this year, while data for October through December 2016 will not be benchmarked by the BLS until March of next year.

In June 2015, I wrote a blog post detailing a method called early benchmarking, which predicts how the BLS will revise the CES data (the method was first introduced by our colleagues at the Dallas Fed). The BLS rebenchmarks the CES using QCEW data only once a year. However, QCEW data are released quarterly, so it’s possible to use the QCEW data to predict how the BLS will revise the CES (this process is explained in detail in my earlier post). The benchmark revisions to the CES can be quite large, and last year, I found that for the District and most District states, the early benchmarked jobs numbers were closer to the final benchmarked numbers than the non-benchmarked numbers were.

Table 1 shows that for 2016, the early benchmark procedure is predicting employment in the District grew by 106,000 rather than the 164,000 that the BLS’s current estimates indicate. This difference is largely the result of lower job growth numbers for Illinois and Wisconsin, though Iowa’s job growth number is also lower. The early benchmark procedure also suggests that Indiana’s job growth will be revised up, and Michigan’s will be unchanged.

table1

Figures 1 through 6 show the employment series as currently published by the BLS (in blue) and the early benchmarked series (in red) for the District and District states. The dashed portions of the series represent data that have not yet been benchmarked using the QCEW. The lines are identical through September 2015, but then the lines follow different paths because the early benchmarked series use growth rates from the QCEW until June 2016. While their levels differ, both series have the same growth rates starting in July 2016 (again, for more details on the early benchmarking procedure, see my earlier post).

After the BLS releases newly benchmarked data in March, I will review how well the early benchmarking procedure performed at predicting job growth in the District.

fig1

fig2

fig3

fig4

fig5

fig6

[1] The Seventh District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin.

[2] For more information on the BLS’s benchmarking process, go here.

Seventh District Update, January 2017

blog_image_7th_D

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 late November and December, though contacts expected it to move up to a moderate pace over the next six to twelve months.
  • Employment and Wages: Employment growth slowed to a modest rate, though contacts continued to indicate that the labor market is tight. Wage growth picked up to a moderate pace.
  • Prices: Prices again rose modestly. Retail prices increased only slightly, but contacts reported rallies in energy and metals prices.
  • Consumer spending: Growth in consumer spending picked up to a modest pace. Sales of new light vehicles strengthened further and many dealers reported record sales for 2016.
  • Business Spending: Growth in business spending remained at a moderate pace overall. Retail and manufacturing inventories were generally at desired levels. Current capital expenditures grew at a moderate pace.
  • Construction and Real Estate: Construction and real estate activity edged up. Demand for residential construction, residential real estate, nonresidential construction, and commercial real estate all increased slightly.
  • Manufacturing: Growth in manufacturing production picked up to a robust pace. Growth continued to be strong in autos and aerospace (though it slowed a bit in autos) and was moderate overall among other industries.
  • Banking and finance: Conditions improved on balance. Financial market participants reported broad-based growth in equity prices and low volatility. Loan demand from middle-market businesses increased slightly and consumer loan demand was little changed.
  • Agriculture: Farm incomes were little changed. Corn sales picked up some, but inventories remained high. Soybean sales were up moderately, and exports remained strong.

The Chicago Fed Survey of Business Conditions (CFSBC) Activity Index increased to –8 from –19, suggesting that growth in economic activity remained at a modest pace in late November and December. The CFSBC Manufacturing Activity Index rose to +20 from a neutral reading, and the CFSBC Nonmanufacturing Activity Index moved up to –23 from –30.

The Midwest Economy Index (MEI) decreased slightly to –0.01 in November from a neutral reading in October. The relative MEI decreased to +0.20 in November from +0.22 in October. November’s value for the relative MEI indicates that Midwest economic growth was somewhat higher than what would typically be suggested by the growth rate of the national economy.

Seventh District Update, November 2016

blog_image_7th_D

First, a different special announcement: The Federal Reserve announced on November 30, 2016, changes that will be incorporated into its Beige Book report starting in 2017. For more information, see the press 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: Growth in economic activity in the Seventh District slowed to a modest pace in October and early November, but contacts expect growth to return to a moderate pace over the next six to twelve months.
  • Consumer spending: Consumer spending increased slightly over the reporting period, primarily reflecting gains at middle-market retailers. Sales of new light vehicles remained strong in the District.
  • Business Spending: Growth in business spending continued at a moderate pace. Retail and manufacturing inventories were generally at desired levels. Current capital expenditures and employment both grew at a moderate pace.
  • Construction and Real Estate: Activity increased slightly overall. Demand for residential construction, residential real estate, nonresidential construction, and commercial real estate all edged up.
  • Manufacturing: Growth in manufacturing production continued at a moderate pace in October and early November, with strong increases in autos and aerospace (though slowing a bit again in autos) and modest gains overall among other industries.
  • Banking and finance: Conditions were little changed. While U.S. Treasury bond yields were up after the U.S. elections, corporate bond spreads declined. Loan demand from small and middle market businesses was little changed, as was consumer loan demand.
  • Prices and Costs: Cost pressures increased modestly, but remained mild. Energy prices remained low, but industrial metals prices rallied. Retail prices changed little, wage pressures were steady overall, and non-wage labor costs picked up some.
  • Agriculture: Record corn and soybean yields, combined with stable corn prices and rising soybean prices, implied that more crop operations than previously expected would at least break even this year.

The Midwest Economy Index (MEI) rose to −0.01 in October from −0.11 in September. The relative MEI increased to +0.25 in October from +0.16 in September. October’s value for the relative MEI indicates that Midwest economic growth was somewhat 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 decreased to −20 from +9, suggesting that growth in economic activity slowed to a modest pace in October and early November. The CFSBC Manufacturing Activity Index remained at +3, and the CFSBC Nonmanufacturing Activity Index decreased to −33 from +12.

Seventh District Update, October 2016

blog_image_7th_D

First, our ongoing 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.

If you are a Seventh District business leader and would like to share your perspective on current economic conditions with us, you are welcome to participate in the CFSBC. Please send an email with your contact information to thomas.walstrum@chi.frb.org.

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: Growth in economic activity in the Seventh District continued at a moderate pace in late August and September, and contacts expect growth to remain moderate over the next six to twelve months.
  • Consumer spending: Growth in consumer spending increased only slightly and store traffic remained low. The sales pace of autos in the District remained strong, but slowed slightly.
  • Business Spending: Growth in business spending remained at a moderate pace. Retail and manufacturing inventories were generally at desired levels. Current capital expenditures and employment both grew at a moderate pace.
  • Construction and Real Estate: Activity increased modestly overall. Residential construction was little changed, while nonresidential construction, residential real estate, and commercial real estate activity all increased slightly.
  • Manufacturing: Growth in manufacturing production picked up to a moderate pace. Activity continued to be strong in autos and aerospace, while gains remained modest overall among other industries.
  • Banking and finance: Conditions were little changed. Equity prices declined slightly and volatility was low. Loan demand from small and middle market businesses continued to rise. Consumer loan demand increased modestly.
  • Prices and Costs: Cost pressures were unchanged and remained mild. Most energy and metals prices were flat and remained low, though steel prices fell some. Retail prices changed little and wage pressures were steady.
  • Agriculture: Low expectations for farm incomes continued, with contacts expecting that a profitable soybean harvest would not be enough to offset an unprofitable corn harvest.

The Midwest Economy Index (MEI) increased to –0.04 in August from –0.16 in July. The relative MEI moved up to +0.11 in August from +0.01 in July. August’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 increased to +7 from −16, suggesting that growth in economic activity picked up to a moderate pace in late August and September. The CFSBC Manufacturing Activity Index increased to +6 from +3, and the CFSBC Nonmanufacturing Activity Index increased to +8 from −27.

Poor fiscal performance a problem for both state and local governments in Illinois

For a recent Chicago Fed Letter article, I looked back at the fiscal performance of Illinois’s state and local governments and found that, taken together, Illinois governments had been consistently spending more than they had brought in since at least the late 1980s. I also found that while the typical U.S. state often spent more than its revenues over this period, the extent of Illinois’s overspending (or under-taxing) was significantly greater. Finally, I found that the biggest difference in spending between Illinois and the typical state was that Illinois governments spent more on pensions.[1]

As I discussed in the article, in order to compare Illinois’s fiscal performance with other states’, I had to combine the data for state and local governments together. This was necessary because each state divides responsibilities for its activities differently between state and local governments (for example, some states fund K–12 schools primarily through state revenues, while others fund them primarily through local revenues).

That said, one question that naturally arises from my analysis is this: Was it Illinois’s state government, its local governments, or both that engaged in overspending (or under-taxing)? While it is not feasible to use the U.S. Census Bureau data I used for the Chicago Fed Letter to compare the performance of Illinois’s state or local governments with those of other states and their localities, it is possible to compare the performance of Illinois’s state government with that of its local governments.

There is one important caveat to the comparison that follows. During fiscal years (FY) 1988–2013, an average of 25.2% of local government revenues in Illinois came from the State of Illinois. This means that local governments in Illinois depend quite heavily on revenues from the state government to balance their books, and that some amount of overspending (or under-taxing) at the local level could be the result of unpredictable declines in revenues from the state government. However, at least for FY1988–2013, this does not appear to be the case, because the percentage of local revenues coming from the state was relatively stable (the standard deviation was 1.9 percentage points). Any overspending at the local level, then, was largely the result of locally made decisions.

Figure 1 plots expenditures as a share of revenues for the State of Illinois and for the sum of local governments in Illinois since FY1988.[2] Over these years, local governments (summed together) have never spent less than they brought in. Perhaps surprisingly, the State of Illinois often performed better than local governments, though it did much worse in the years following the 2001 and 2008 recessions. The state spent less than it brought in in seven out of the 26 years the data cover—which is not a good performance, but better than the performance of local governments.

blog-1-expliaprev

Because the Census Bureau data lump all 6,963 local governments in Illinois[3] together, it is impossible to know from the data which of these governments are responsible for the overall overspending (or under-taxing). Poor fiscal performance could be concentrated in a few large governments or be widespread. While it is well beyond the scope of this blog post to gather data on the overall fiscal performance of thousands of local governments, I am able to look at the performance of local governments’ pension systems, which is insightful because as I noted earlier, pension spending was one of the biggest contributors to overspending (or under-taxing) by Illinois governments.

Perhaps the best summary measure of the condition of a pension system is its unfunded liability. This is the difference between the discounted present value of all the future payouts the pension has promised to make and the value of the pension’s assets. The unfunded liability, then, is the amount that taxpayers will have to contribute to the pension system in order for it to be able to cover all of its promised future payouts.

Table 1 shows a breakdown by locale of the total unfunded pension liability facing Illinois state and local governments at the end of FY2014.[4] Of the $158.2 billion total, $104.6 billion (66%) was the responsibility of the state government and the remaining $53.6 billion (34%) was the responsibility of local governments. Beyond the state versus local government comparison, things get complicated because some pension systems cover overlapping geographies. The City of Chicago has six separate pension funds covering its workers, and there are three for Cook County employees (Cook County holds almost the entirety of Chicago and a number of its suburbs[5]). On top of that, most municipalities have their own police and firefighters pensions, and there is a single pension system for all other non-Chicago municipality workers called the Illinois Municipal Retirement Fund.

Even though the system of local government pensions in Illinois is somewhat complicated, it is clear from table 1 that the City of Chicago is disproportionally responsible for the accumulation of local unfunded pension liabilities. A little over one-fifth of Illinois’s population is in Chicago, but Chicago is responsible for more than half of local government unfunded pension liabilities in Illinois. Chicago residents owe $10,492 per person to their city’s pension systems, on top of the $8,130 per person they owe to the state pension systems.

blog-3-table-1

To make the comparison of the unfunded liabilities of Illinois’s local governments clearer, I show in table 2 the total per capita state and local unfunded liability by place of residence. There is one wrinkle acknowledged within the table, however, which is that Chicago residents are responsible for the pensions of all Illinois teachers, while Illinois residents outside of Chicago are not responsible for the pensions of Chicago teachers. Thus, perhaps a fairer comparison is to count the unfunded liability of the Chicago teachers’ pension fund as a state-level liability. While this change reduces the unfunded pension liability faced by Chicago residents by 13%, they still would owe a total of $17,506 per person to various Illinois pension systems. Those living outside Chicago would face a smaller, but still quite large, liability per person ($11,954 in suburban Cook County and $10,553 outside Cook County).

blog-4-table-2

While suburban and downstate police and fire pension systems make up a relatively small part of the total unfunded pension liability of Illinois’s state and local governments (5.6%), pension systems for some municipalities may be in much worse shape than others, so that these liabilities can still matter quite a bit. Table 3 shows the unfunded liabilities for police and firefighters pensions for the 25 most populous cities in Illinois. Chicago is in the worst shape, but residents of Moline, Rock Island, Evanston, and Peoria all owe more than $2,000 per resident to their police and firefighters pension systems. Some cities are in much better shape. For example, residents of Urbana owe fewer than $500 per resident to their systems.

blog-5-table-3

This blog post shows that overspending (or under-taxing) has long been a problem for both the State of Illinois and the local governments in Illinois, with the accumulation of unfunded pension liabilities playing an important role at both levels of government. And while the City of Chicago has built up a larger unfunded pension liability than that of suburban Chicago and downstate Illinois, every region of Illinois bears some blame for overspending (or, once again, under-taxing).

[1] See the Chicago Fed Letter for a detailed explanation of how I calculate pension spending.

[2]See Chicago Fed Letter for details about how these figures are calculated. Expenditures include the change in pension liabilities.

[3] 2012 Census of Governments (https://www.census.gov/govs/cog/).

[4] All unfunded liability data come from the 2015 Biennial Report of the Illinois Department of Insurance Public Pension Division, http://insurance.illinois.gov/Reports/Pension/pension_biennial_report_2015.pdf.

[5] Technically, a portion of O’Hare Airport—and therefore Chicago—is in DuPage County.

Seventh District Update, September 2016

blog_image_7th_D

First, a (repeat) repeat 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.

If you are a Seventh District business leader and would like to share your perspective on current economic conditions with us, you are welcome to participate in the CFSBC. Please send an email with your contact information to thomas.walstrum@chi.frb.org.

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: Growth in economic activity in the Seventh District picked up to a moderate pace in July and early August, and contacts expect growth to remain moderate over the next six to twelve months.
  • Consumer spending: Growth in consumer spending slowed notably with most segments reporting little change in sales. Auto sales slowed some, but remained strong.
  • Business Spending: Growth in business spending picked up to a moderate pace. Retail inventories were somewhat higher than desired because of softer sales. Current capital expenditures picked up to a moderate pace, while hiring continued at a modest rate.
  • Construction and Real Estate: Activity increased slightly overall. Residential construction and home sales increased slightly. Demand for nonresidential construction picked up some, and commercial real estate activity increased slightly.
  • Manufacturing: Growth in manufacturing production picked up to a moderate pace. Activity continued to be strong in autos and aerospace, and increased in most other industries.
  • Banking and finance: Conditions improved modestly. Equity prices were higher, volatility was low, and loan demand from small and middle market businesses grew modestly. Consumer loan demand increased slightly.
  • Prices and Costs: Cost pressures were unchanged and remained mild. Most energy and metals prices were flat and remained low. Retail prices changed little and labor cost pressures were steady.
  • Agriculture: Already low expectations for farm incomes deteriorated over the reporting period as the potential for a record national harvest pushed prices down further.

The Midwest Economy Index (MEI) decreased to −0.14 in July from −0.04 in June. The relative MEI moved down to +0.03 in July from +0.38 in June. July’s value for the relative MEI indicates that Midwest economic growth was quite close to what would typically be suggested by the growth rate of the national economy.

The Chicago Fed Survey of Business Conditions (CFSBC) Activity Index increased to −18 from −23, suggesting that growth in economic activity remained at a modest pace in July and early August. The CFSBC Manufacturing Activity Index increased to a neutral value from −31, while the CFSBC Nonmanufacturing Activity Index declined to −27 from −18.

Seventh District Update, July 2016

blog_image_7th_D

First, a (repeat) repeat 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.

If you are a Seventh District business leader and would like to share your perspective on current economic conditions with us, you are welcome to participate in the CFSBC. Please send an email with your contact information to thomas.walstrum@chi.frb.org.

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: Growth in economic activity in the Seventh District continued at a modest pace in late May and June, and contacts expect growth to remain modest over the next 6 to 12 months.
  • Consumer spending: Growth continued at a moderate pace. Auto sales remained robust.
  • Business Spending: Growth remained modest. Most retailers and manufacturers reported comfortable inventory levels. Current capital outlays remained modest and plans for future outlays declined. Hiring continued at a modest rate, and there was an uptick in expectations for future hiring.
  • Construction and Real Estate: Activity increased slightly overall. Residential construction was little changed, while home sales increased in most locations. Demand for nonresidential construction increased slightly and commercial real estate activity rose modestly.
  • Manufacturing: Growth remained modest. Activity continued to be strong in autos and aerospace, but remained weaker in most other industries.
  • Banking and finance: Developments were mixed. Financial market volatility increased significantly, driven primarily by the United Kingdom’s vote to exit the European Union. Business and consumer loan demand grew slightly.
  • Prices and Costs: Cost pressures were unchanged and remained mild. Most energy and metals prices were flat and remained low. Retail prices were flat and labor cost pressures were steady.
  • Agriculture: Corn and soybean price gains led more farmers to lock in prices for the fall harvest, though the increases were not enough to change contacts’ expectations that farm incomes will be weak this year.

The Midwest Economy Index (MEI) decreased to +0.12 in May from +0.28 in April. The relative MEI declined to +0.53 in May from +0.71 in April. May’s value for the relative MEI indicates that Midwest economic growth was somewhat 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 decreased to −24 from −21, suggesting that growth in economic activity remained modest in late May and June. The CFSBC Manufacturing Activity Index declined to −28 from −17, while the CFSBC Nonmanufacturing Activity Index ticked up to −22 from −23.

Seventh District Update, June 2016

blog_image_7th_D

First, a (repeat) 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: Growth in economic activity in the Seventh District slowed to a modest pace in April and early May, tempering contacts’ optimism about growth over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending picked up to a moderate pace. Retailers in Michigan indicated that sales were the best they had seen in over a year. Auto sales remained robust.
  • Business Spending: Most retailers and manufacturers reported comfortable inventory levels. Current capital outlays and plans for future outlays slowed to a modest pace. Hiring also slowed to a more modest rate, as did expectations for future hiring.
  • Construction and Real Estate: Residential construction rose slightly, and residential rents and home prices rose moderately. Demand for nonresidential construction was little changed and commercial real estate activity rose modestly.
  • Manufacturing: Manufacturing production grew at a modest pace. Activity remained strong in autos and aerospace, but was slower in most other industries.
  • Banking and finance: On balance, financial conditions improved marginally. Market volatility decreased, high yield debt issuance rebounded, and upgrades outpaced downgrades for credit ratings of U.S. public financial firms. Business and consumer loan demand was little changed on balance.
  • Prices and Costs: Cost pressures again tightened some, but remained mild overall. Most energy and metals prices increased (steel in particular), but the level remained low. Retail prices increased slightly, as did wage costs. Growth in non-wage labor costs was steady.
  • Agriculture: Corn and soybean prices rose, improving farmers’ earnings prospects.

The Midwest Economy Index (MEI) was unchanged at +0.25 in April. The relative MEI increased to +0.71 in April from +0.67 in March. April’s value for the relative MEI indicates that Midwest economic growth was moderately 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 decreased to –23 from zero, suggesting that growth in economic activity slowed to a modest pace in April and early May. The CFSBC Manufacturing Activity Index declined to –23 from +27, while the CFSBC Nonmanufacturing Activity Index decreased to –24 from –15.

Seventh District Update, April 2016

blog_image_7th_D

First, a (repeat) 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: Growth in economic activity in the Seventh District picked up to a moderate pace in late February and March, and contacts expressed renewed optimism about the outlook for growth over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending maintained a modest pace, though, in contrast to the national data, reports of new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers and manufacturers reported comfortable inventory levels. Current capital outlays and plans for future outlays picked up to a moderate pace. Hiring also picked up to a moderate pace, as did the number of contacts saying they planned to increase their workforces in the future.
  • Construction and Real Estate: Residential construction edged up and residential rents and home prices rose slightly. Demand for nonresidential construction was little changed and commercial real estate activity rose moderately.
  • Manufacturing: While manufacturing production rose at a modest rate early in the reporting period, growth increased to a moderate pace by the end March. Activity remained strong in the auto and aerospace industries and picked up in most other industries.
  • Banking and finance: Overall, financial conditions improved some. Equity markets regained much of their losses from the previous reporting period and volatility subsided. Business loan demand improved marginally and consumer loan demand was little changed, on balance.
  • Prices and Costs: Cost pressures increased some in late February and early March, but remained mild overall. Most energy and metals prices increased, but remained low. Retail prices changed little on balance, and wage and nonwage cost pressures remained mild.
  • Agriculture: Corn, soybean, and wheat prices moved up, and fertilizer prices and land rents moved down, but these changes were not large enough to appreciably improve crop farmers’ earnings prospects.

The Midwest Economy Index (MEI) moved up to +0.07 in February from −0.09 in January. The relative MEI fell to +0.54 in February from +0.73 in January. February’s value for the relative MEI indicates that Midwest economic growth was somewhat 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 increased to –4 from –20, suggesting that growth in economic activity picked up to a moderate pace in late February and March. The CFSBC Manufacturing Activity Index rose to +23 from –19, while the CFSBC Nonmanufacturing Activity Index increased to –19 from –21.