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 picked up in March, and contacts generally maintained their optimistic outlook for 2014.
• Consumer spending: Growth in consumer spending increased slightly in March, but remained modest. Sales of winter-related items were stronger than normal, while other sales categories, in particular light vehicles, picked up as the weather improved.
• Business Spending: Growth in business spending increased to a moderate pace in March. Growth in capital spending picked up. The pace of hiring increased, and while hiring plans decreased slightly, they remained positive.
• Construction and Real Estate: Growth in construction and real estate activity was modest in March. Although conditions improved, residential construction and real estate contacts reported that adverse weather continued to restrain growth. Demand for nonresidential construction grew at a moderate pace and commercial real estate activity continued to expand.
• Manufacturing: Growth in manufacturing production increased from a mild to moderate pace in March, with contacts from a number of industries reporting increased activity. The auto, aerospace, and energy industries remained a source of strength. Auto and steel production recovered from the weather-related slowdown, while demand for heavy machinery remained soft.
• Banking and finance: Credit conditions were again little changed on balance over the reporting period. Corporate financing costs decreased slightly, as bond spreads narrowed. Banking contacts reported moderate growth in business loan demand and modest growth in consumer loan demand.
• Prices and Costs: Cost pressures were mild. While energy and transportation costs remain elevated, they were lower than during the previous reporting period. Wage pressures were slightly lower and non-wage pressures moderated.
• Agriculture: The slow arrival of spring-like weather delayed fieldwork, but farmers were generally not too worried about the delay. Soybean prices rose relative to corn. The livestock sector moved further into the black, as milk, hog, and cattle prices increased.
The Midwest Economy Index (MEI) decreased to –0.03 in February from +0.32 in January, falling below zero for the first time since June 2013. Moreover, the relative MEI moved down to –0.01 in February from +0.23 in the previous month. February’s value for the relative MEI indicates that the Midwest economy was growing at a rate consistent with national economic growth.