Seventh District Update, March 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 January and early February, and contacts expected growth to continue at a similar pace over the next six to twelve months.
  • Consumer spending: Growth in consumer spending remained moderate. Lower energy prices benefitted retail sales, though not as much as some were hoping. The pace of new light vehicle sales held steady, while sales of used vehicles increased.
  • Business Spending: Overall, inventory levels were comfortable, but delays at west coast ports led some manufacturers to increase inventories as a precaution. Both the pace of capital spending and the pace of hiring slowed somewhat, though spending and hiring plans grew steadily.
  • Construction and Real Estate: Demand for residential construction was little changed. Home prices and residential rents both increased, while home sales held steady. Nonresidential construction and commercial real estate activity increased moderately.
  • Manufacturing: Growth was again moderate. The auto industry remained a source of strength. Steel demand grew steadily, and demand for heavy machinery and heavy trucks both picked up.
  • Banking and finance: Credit conditions improved on balance. Equity markets moved higher and volatility declined. Business and consumer loan demand both increased.
  • Prices and Costs: Cost pressures were little changed overall. Delays at west coast ports led some contacts to use higher cost supply routes. Wage and non-wage costs changed little on balance.
  • Agriculture: Corn, soybean, wheat, hog, cattle, and milk prices were all lower. Input costs for spring planting remained elevated, leading some to purchase lower quality seeds to reduce costs. Some marginal ground will be used as pasture or for hay production instead.

Led by continued strength in the manufacturing sector, the Midwest Economy Index (MEI) increased to +0.67 in December from +0.43 in November. However, the relative MEI fell to +0.21 in December from +0.70 in November. December’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.