by Thom Walstrum and Scott Brave
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 April and May. Although contacts were expecting a stronger pick-up in growth, they maintained their optimistic outlooks for the remainder of the year.
• Consumer spending: Growth in consumer spending increased slightly, but overall remained modest. Several retail contacts reported higher than normal inventories in anticipation of stronger summer sales. Light vehicle sales decreased slightly.
• Business Spending: Business spending grew at a moderate pace, led by higher capital expenditures on equipment and software. Hiring plans changed little from the previous period.
• Construction and Real Estate: Growth in construction and real estate activity picked up. Residential construction increased, while nonresidential construction continued to expand at a slow pace. Contacts also noted improvement in residential and commercial real estate markets.
• Manufacturing: Manufacturing production continued to grow at a moderate pace. Capacity utilization in the auto and steel industries increased as production levels rose. Demand for heavy machinery grew at a slow but steady pace, weighed down by the weakness in mining.
• Banking and finance: Credit conditions improved slightly. Corporate financing costs decreased. Business lending increased, driven by commercial and industrial loan demand from small businesses. Growth in consumer loan demand remained modest.
• Prices and Costs: Cost pressures increased, but overall were modest. Energy and transportation costs remained elevated. Contacts reported lingering shipment delays of goods and raw materials from the harsh winter weather earlier in the year. Wage pressures rose slightly and non-wage pressures rose moderately.
• Agriculture: Corn and soybean planting progressed quickly after precipitation and cool temperatures slowed fieldwork earlier in the spring. Corn and wheat prices were lower, while soybean prices drifted higher. Livestock prices remained well above the levels of a year ago, although hog prices moved lower.
The Midwest Economy Index (MEI) increased to +0.12 in April from –0.04 in March. However, the relative MEI decreased to –0.23 in April from –0.13 in the previous month, remaining negative for the second consecutive month. April’s value for the relative MEI indicates that Midwest economic growth was somewhat lower than would typically be suggested by the growth rate of the national economy.