Seventh District Update, July 2016

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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.