All posts by Thomas Walstrum

Seventh District Update, June 2016

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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

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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.

Early Benchmarking the State Payroll Employment Survey—Update

In June of 2015, I wrote a blog post detailing a method called early benchmarking, which predicts how the U.S. Bureau of Labor Statistics (BLS) will revise the state payroll employment survey data when it updates its benchmarks each March (the method was first introduced by our colleagues at the Dallas Fed). The primary source of the revisions for state payroll employment (also known as the Current Employment Statistics, or CES) is the Quarterly Census of Employment and Wages (QCEW). While the BLS only rebenchmarks the CES using new QCEW data yearly, QCEW data are released quarterly, so it’s possible to use new QCEW data to predict how the BLS will revise the CES (this process is explained in detail in my earlier post). Benchmark revisions to the CES can be quite large, and we have found that our early benchmarking procedure typically reduces their size.

The BLS recently released the March 2016 benchmarked data, so we can see how the early benchmarking method performed for the Seventh Federal Reserve District and the District states for 2015. Table 1 summarizes how much employment grew in the Seventh District and District states in 2015 based on when the data were benchmarked using the QCEW. At the District level, the early benchmarking procedure performed marginally better: It underestimated job growth by 32,000, while data benchmarked in March 2015 underestimated job growth by 38,000. Both datasets estimated a 1.1 percent growth rate for 2015.

Early benchmarking is more useful at the state level, because CES sample sizes are smaller. For 2015, the largest error was for Illinois, where the March 2015 benchmarked data estimated that employment declined by 3,000, while the March 2016 benchmarked data indicate that employment actually increased by 51,000. The January 2016 benchmarked data roughly split the difference, estimating job growth of 29,000.

Table 1 - Job Growth

The figures that follow show graphically the differences between the three series summarized in table 1 for the District and District states. The dashed portion of the lines for each series represents data that are not benchmarked using the QCEW. For example, the early benchmarked data are benchmarked using QCEW data through June 2015, while the March 2016 benchmarked data use QCEW data through September 2015. In some figures it is clear that the BLS also revises already-benchmarked data, though these revisions are typically small (Wisconsin is an exception for 2014).

Later this year, we will begin publishing early benchmarked estimates of District and District state employment growth on our website on a monthly basis (coinciding with the release of the Midwest Economy Index). We will be sure to notify our Midwest Economy blog readers when we make the estimates available.

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Seventh District Update, March 2016

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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: Economic activity continued to increase at a modest pace, but turmoil in financial markets led contacts to express greater uncertainty and more pessimism about the pace of growth over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending continued at a modest pace, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels. Current capital spending and plans for future outlays both picked up some, but growth remained modest. The pace of hiring also picked up some, but growth remained slow. More contacts noted plans to increase their workforces over the next 6 to 12 months than in the previous reporting period.
  • Construction and Real Estate: Residential construction expanded modestly, and residential rents, home sales, and home prices all inched up. Nonresidential construction activity was little changed. Commercial real estate activity remained strong, fueled by demand from institutional investors.
  • Manufacturing: Gains in manufacturing production continued at a moderate pace. Growth remained strong in the auto and aerospace industries, but was slower in most other industries.
  • Banking and finance: Financial conditions tightened slightly on balance. Contacts reported that concerns about slower global economic growth led to declines in equity markets. Business and consumer loan demand grew slightly.
  • Prices and Costs: Cost pressures continued to be subdued. Commodity prices remained low, retail prices were little changed, and wage and nonwage cost pressures remained mild.
  • Agriculture: Crop farmers continued to cut capacity following another year of low incomes coupled with unexpectedly small declines in input costs.

The Midwest Economy Index (MEI) moved up to –0.15 in December from –0.20 in November. The relative MEI rose to +0.28 in December from +0.08 in November. December’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 edged down to –19 from –17, suggesting that growth in economic activity continued at a modest pace in January and early February. The CFSBC Manufacturing Activity Index rose to –7 from –18, while the CFSBC Nonmanufacturing Activity Index declined to –25 from –16.

Introducing the Chicago Fed Survey of Business Conditions (CFSBC)

On January 13, 2016, the Chicago Fed published the inaugural release of its Survey of Business Conditions (CFSBC). This new data product offers a series of diffusion indexes that track a broad set of topics related to the business conditions of firms in the Seventh District: overall activity (or product/service demand), outlook for the U.S. economy, current and planned hiring, current and planned capital spending, and wage and nonwage cost pressures.

The indexes are derived from questions included in a survey of Seventh District business leaders (started in March 2013) that was originally designed to support the Chicago Fed’s contribution to the Beige Book. Table 1 shows that CFSBC respondents come from a variety of industries, with the largest representation coming from the nonfinancial services sector and the manufacturing sector. The survey has averaged about 75 respondents over its history, though more recent surveys have averaged about 100 respondents.

CFSBC - 1 - Tab1

While the Beige Book is explicitly an anecdotal (or qualitative) account of current economic conditions, we decided to also include quantitative questions in our survey so that we can calculate indexes. These questions follow a seven-point scale. For example, here is our question about product/service demand:[1]

In the past four to six weeks, demand for my firm’s product or service has

  • increased substantially.
  • increased moderately.
  • increased slightly.
  • not changed.
  • decreased slightly.
  • decreased moderately.
  • decreased substantially.

The diffusion indexes we calculate from questions such as the one above are designed to be leading indicators, capturing changes in the prevailing direction of economic activity. The formula for the indexes is:

CFSBC - 4 - Formula 2

In many ways, this is a very traditional formula for a diffusion index, but we make an important adjustment that we would argue improves it: we measure individuals’ responses relative to their respective average responses. To calculate a respondent’s average response to a question, we assign numerical values ranging from +3 to –3 along the seven-point scale, and take the average across all responses. We then count a response as positive if it is above a respondent’s average response and negative if it is below a respondent’s average response. For example, if a respondent’s average response is +1.5, substantial and moderate increases are counted as positive responses and all other answers are counted as negative responses. Given our formula, the index ranges from +100 to –100 and will be +100 if every respondent in a given survey has an above-average response to a question and –100 if every respondent has a below-average response.

Calculating the indexes using a survey participant’s average response as a baseline—also known as detrending—allows us to correct for two types of potential biases. First, individuals may interpret phrases such as “substantially increased” differently, so that our numerical scores have different meanings for different people. Second, the industries and firms represented in our data may have different growth trends than the overall economy, which could bias the indexes because we do not have a random sample of respondents. For example, because manufacturers represent a sizable share of our respondents, our index could overrepresent trends in the manufacturing sector. The share of manufacturing output and employment in the U.S. economy has been declining for decades, so that in general, trends in the manufacturing sector are becoming less and less representative of trends in the overall economy.

Respondents’ respective average answers to a question can be interpreted as representing their historical trends or long-run averages. Thus, when we summarize respondents’ detrended responses by calculating diffusion indexes, we interpret zero index values to indicate that, on balance, the activity indicators are growing at their trend rates (or that outlooks are neutral). Likewise, positive index values indicate above-average growth (or optimistic outlooks) on balance, and negative values indicate below-average growth (or pessimistic outlooks) on balance.

For a concrete example of how we interpret the diffusion indexes, consider figure 1, which shows the CFSBC Activity Index (which is based on the question about product/service demand). It shows that 2013 was a bumpy year, with growth in activity about at trend on average. According to the index, 2014 started slowly (as you may recall, there was a lot of bad weather in the winter of 2014–15), but growth was consistently above trend for the rest of the year. Activity then slowed throughout 2015 to the point that growth was below trend by year’s end.

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We’ve found that the CFSBC Activity Index seems to do a good job of tracking U.S. real gross domestic product (GDP) growth, so that the index may be a good early indicator of the current state of the economy. Figure 2 shows this relationship, where I’ve aligned a zero value of the CFSBC Activity Index with the average of real GDP growth over the comparison date range. In general, the CFSBC Activity Index is positive when real GDP growth is above average and negative when real GDP growth is below average.

CFSBC - 3 - ActGDP

Because we use the results of the CFSBC to write our contribution to the Beige Book report, we will be releasing the CFSBC index data in conjunction with the Beige Book schedule. The Beige Book is released at 1:00 p.m. ET on the Wednesday two weeks before FOMC meetings, which take place eight times per year. The CFSBC index data are released two hours later.

For a more detailed description of the diffusion indexes and their properties, see the Chicago Fed Economic Perspectives article titled “The Chicago Fed Survey of Business Conditions: Quantifying the Seventh District’s Beige Book Report.”

[1] The full set of questions used for the CFSBC indexes is available here.

Seventh District Update, January 2016

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First, a 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: Economic activity continued to increase at a modest pace, but contacts were optimistic that growth would pick up some over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending continued at a modest pace, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels. Current capital spending and plans for future outlays both picked up some, but growth remained modest. The pace of hiring remained slow, though more contacts noted plans to increase their workforces over the next 6 to 12 months than in the previous reporting period.
  • Construction and Real Estate: Residential construction edged up, and residential rents, home sales, and home prices increased slightly. Although commercial real estate activity slowed some, it remained strong and broad-based. Commercial rents increased slightly.
  • Manufacturing: Gains in manufacturing production picked up to a moderate pace. Growth remained strong in the auto and aerospace industries and picked up slightly in most other industries.
  • Banking and finance: Financial conditions tightened slightly on balance. Contacts noted greater illiquidity in the bond market, growth in small and middle-market business loan demand slowed slightly, and consumer loan demand was little changed.
  • Prices and Costs: Cost pressures continued to be subdued. Commodity prices remained low, retail prices were little changed, and wage and nonwage cost pressures remained mild.
  • Agriculture: District farm incomes declined as the large harvest pushed product prices down faster than input costs.

The Midwest Economy Index (MEI) moved down to –0.17 in November from –0.14 in October. The relative MEI rose to +0.13 in November from –0.32 in October. November’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 declined to –17 from –12, suggesting that growth in economic activity continued at a modest pace in late November and December. The CFSBC Manufacturing Activity Index rose to –20 from –37, and the CFSBC Nonmanufacturing Activity Index fell to –16 from zero.

Understanding the Seventh District’s economic slowdown in 2015

As I noted on this blog in February 2015, 2014 was a pretty good year for the Seventh District. Real District gross state product (GSP) grew 1.2%, the unemployment rate fell from 7.3% to 5.8%, and payroll employment grew 1.5%. The strong finish to 2014 led me to feel quite optimistic for how 2015 would turn out. Unfortunately, it has become increasingly clear that economic activity in the Seventh District has steadily slowed as 2015 has progressed. While the District is certainly not in recession, it is now likely growing at a below-trend pace. In this blog post, I provide evidence of the slowdown and explore how the fortunes of District states’ signature industries have both contributed to and helped mitigate the slowdown.

While we wait for the GSP data for 2015 to be released (due out in June), arguably the best overall indicator we have for 2015 District economic activity is our Midwest Economy Index [1] (I should note here that we will be releasing a new survey-based activity index later this month). Figure 1 shows values for the MEI from 2014 to the present. The index was well above zero throughout 2014, indicating that growth was consistently above trend. Just as 2015 began, the index began to decline, and it entered negative territory in June. The most recent reading of the MEI (for November 2015) indicates that District growth is somewhat below trend.

1-MEI

Some important indicators included in the calculation of the MEI are payroll employment, the regional Purchasing Manager Indexes (PMIs) [2], and per capita personal income. Not surprisingly, they also largely suggest that economic activity in the District slowed in 2015. Figure 2 shows that while District payroll employment grew by an average of 23,000 jobs per month in 2014, the pace of growth slowed to only about 12,000 new jobs per month in 2015. Figure 3 shows the simple average of the five PMIs available for the Seventh District. This average also indicates that economic activity declined notably starting in 2015. As a counterpoint, figure 4 shows that the pace of growth in real personal income per capita has not slowed much in 2015: The annualized growth rate for 2014 was 3.08% and the available data for 2015 (through Q3) indicate that the annualized growth rate has only slowed to 2.94%.

2&3-Emp&PMIs

4-RIPC

While the preponderance of evidence suggests that Seventh District economic activity slowed in 2015, it turns out that the experiences of individual states within the District have been quite different. Figure 5 shows the sum of the contributions to the MEI for the eastern states of the District (Indiana and Michigan) and the sum for the western states of the District (Illinois, Iowa, and Wisconsin). Growth in 2014 was above the District’s long run trend in both sub-regions, but the western states outperformed the eastern states. The pace of activity in the eastern states picked up steadily through the first half of 2015 and has since slowed to near the District’s trend. This experience contrasts quite notably with that of the western states. Activity in these states began to slow at the end of 2014 and continued to slow until the middle of 2015, at which point conditions improved some.

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One approach to understanding the different experiences of eastern and western District states is to do an economic base analysis for each state. Such an analysis identifies the industries whose employment is especially concentrated in a state (and therefore likely quite important for the state’s economy) by calculating a location quotient (LQ). A location quotient is the ratio of the share of employment in an industry in a state to the share of employment in an industry in the U.S. as a whole:

Formula

As an example, if the machinery industry’s share of employment in Michigan is 1.3% and the machinery industry’s share of employment in the U.S. is 1%, then the location quotient is 1.3, and we say that the machinery industry is 30% more concentrated in Michigan than in the U.S. as a whole.

For this blog post, I calculate location quotients for each state for each of the 3-digit NAICS industries that are available from the Bureau of Labor Statistics’ (BLS) payroll employment survey.[3] I then consider the industries in each state with a location quotient greater than 1.5. This approach successfully identifies the signature industries one typically thinks of for each state in the District. For example, the analysis picks up Michigan’s auto industry, Indiana’s steel industry, and Illinois’s, Iowa’s, and Wisconsin’s machinery industry.

Table 1 shows the high-location quotient industries for Indiana and Michigan, along with the percentage of overall employment the industry represents and the year-over-year employment growth rate of the industry from November 2014 to November 2015. With the exception of the primary metals industry (where employment fell by 0.93%), employment grew for all of Indiana’s high-LQ industries and was solid for most of them. The story is even clearer in Michigan, where the auto industry dominates. Employment in the transportation equipment industry grew 4.59% over the past year.

To summarize the overall growth of District states’ flagship industries, I calculate the average growth rate for the industries, weighted by their relative size. Employment in Indiana’s flagship industries grew 1.35% over the past year, while employment in Michigan’s flagship industries grew 3.38%. Thus, even though the pace of growth in economic activity slowed in Indiana and Michigan in the second half of 2015, it was still a good year for both states.

6-Table 1

The story is more mixed for the states in the western part of the District (table 2). Machinery (and the fabricated metal producers who support them) has not faired well in the past year: Illinois, Iowa, and Wisconsin all saw notable declines in machinery and fabricated metal employment (with the exception of Wisconsin’s machinery employment, which was flat). However, Iowa and Wisconsin were helped by strong growth in other flagship industries (food products in both Iowa and Wisconsin and finance in Iowa). Illinois has few other flagship industries to help it, though it’s worth noting that Chicago has fared much better than downstate Illinois because of its concentration in business services and finance. Average employment growth for Illinois’s high-LQ industries was dismal (-2.04%), while growth was solid for Iowa’s (1.58%), and slow for Wisconsin’s (0.73%). Thus, although some flagship industries have done well in the western states in the District, the struggles of the machinery industry appear to have put quite a damper on their economic performance.

7-Table 2

So we see that the overall slowdown in the District in 2015 was not a shared experience across District states. The eastern states (Michigan and Indiana) did notably better than the western states (Illinois, Iowa, and Wisconsin) and these differences are relatively consistent with the performance of states’ flagship industries. What does the future hold for these flagship industries? At the moment, it’s hard to find much evidence that there will be a significant reversal of fortunes in 2016. The auto industry is likely to continue to benefit from steady growth in the U.S. economy and low gasoline prices, while the machinery industry is likely to continue to suffer from weaker global growth and depressed commodities prices (which hurt demand for both mining and agriculture machinery).

That said, while flagship industries certainly play an important role in a state’s economy because of all the related industries that support them, there are still many industries that are not closely related to them. For example, Iowa’s contribution to the MEI has been negative for most of 2015 (not shown), likely because of the struggles in the farming industry (see the Chicago Fed’s latest AgLetter for more details). The converging trends in the MEI (figure 5) suggest that these other factors are also making their presence known.

[1] The MEI is a weighted average of 129 Seventh District state and regional indicators measuring growth in nonfarm business activity from four broad sectors of the Midwest economy: manufacturing, construction and mining, services, and consumer spending.

[2] The PMIs included in the index are for Chicago, Iowa, Detroit, and Milwaukee.

[3] Data are not available for all 3-digit NAICS industries because there is not sufficient employment in some industries in some states for the BLS to be able to cover them accurately.

Seventh District Update, December 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 continued at a modest pace in October and early November.
  • Consumer spending: Growth in consumer spending continued at a modest pace, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels. Current capital spending slowed and now appears in line with modest plans for capital outlays. The pace of hiring slowed notably, particularly for non-auto-related manufacturers, and hiring plans remained modest.
  • Construction and Real Estate: Demand for residential construction increased moderately, though home sales and the pace of home price growth have slowed. Commercial real estate activity continued to increase moderately, while commercial rents increased slightly.
  • Manufacturing: Manufacturing production growth slowed to near zero in October and early November. Although the auto industry continued to experience solid gains, most other industries saw limited growth or reported declines in activity.
  • Banking and finance: Credit conditions were little changed on balance. Loan demand from large and middle market firms fell; however, small business lending ticked up. Consumer loan demand increased slightly, with multiple contacts citing strong demand for auto loans.
  • Prices and Costs: Cost pressures continued to be subdued. Steel prices declined, while the prices of other primary metals and energy remained low. Most retailers reported stable pricing and wage pressures were mild.
  • Agriculture: District corn and soybean harvests exceeded expectations, and most agricultural commodity prices fell.

The Midwest Economy Index (MEI) moved up to –0.14 in October from –0.17 in September. The relative MEI increased to –0.23 in October from –0.34 in September. October’s value for the relative MEI indicates that Midwest economic growth was somewhat lower than what would typically be suggested by the growth rate of the national economy.

Seventh District Update, October 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 slowed to a more modest pace in late August and September, but most contacts expected growth to pick up somewhat over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending slowed to a more modest pace over the reporting period, though new and used vehicle sales continued to be strong.
  • Business Spending: Most retailers reported comfortable inventory levels, while many manufacturers indicated an undesirable increase in inventories. The pace of hiring and capital spending remained moderate, but many contacts reduced plans for future hiring and capital expenditures.
  • Construction and Real Estate: The pace of residential construction was unchanged. Residential rents, home prices, and home sales were also little changed, though residential rents increased modestly. Commercial real estate activity again increased moderately.
  • Manufacturing: Growth in production slowed to a more modest pace in spite of strong growth in the auto and aerospace industries. Capacity utilization in the steel industry remained low and sales of heavy machinery remained weak.
  • Banking and finance: Credit conditions were little changed. Financial market volatility declined, but remains high. Business and consumer loan demand increased slightly.
  • Prices and Costs: Cost pressures remained subdued. Energy and steel prices declined, while the prices of other primary metals remained low. Most retail prices changed little and wage pressures remained mild.
  • Agriculture: Corn and soybean crop conditions improved some as the harvest began, while the profitability of crop operations ranged from substantial losses to break-even. Wheat and milk prices moved up, while hog, cattle, and egg prices moved down.

The Midwest Economy Index (MEI) ticked down to −0.12 in August from −0.11 in July. The relative MEI declined to −0.23 in August from −0.06 in July. August’s value for the relative MEI indicates that Midwest economic growth was somewhat lower than what would typically be suggested by the growth rate of the national economy.

Seventh District Update, September 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 was moderate in July and early August, and most contacts expect activity to rise at a similar pace over the next 6 to 12 months.
  • Consumer spending: Growth in consumer spending continued at a moderate pace. New and used vehicle sales continued to be strong.
  • Business Spending: Growth in business spending remained moderate. Overall, inventory levels were comfortable, though steel service center inventories were slightly elevated. The pace of hiring and capital spending remained moderate.
  • Construction and Real Estate: Residential construction ticked up, while residential rents, home prices, and home sales all increased slightly. Demand for nonresidential construction edged up and commercial real estate activity again increased moderately.
  • Manufacturing: Growth was again moderate, as the auto and aerospace industries continued their strong advance. Capacity utilization in the steel industry remained low. Sales of heavy trucks grew steadily, while sales of heavy machinery remained weaker.
  • Banking and finance: Credit conditions were little changed. Financial market volatility was higher, while credit spreads were largely unchanged. Business loan demand weakened some, while consumer loan demand was up slightly.
  • Prices and Costs: Cost pressures were subdued. Energy prices remained low, as did prices of steel and other primary metals. Most retail prices changed little and wages pressures remained mild.
  • Agriculture: The condition of the corn and soybean crops was uneven across the District, with record yields possible in some areas and low yields likely in others. Corn, soybean, and wheat prices declined. Hog prices were flat, dairy moved up, and cattle prices moved down. The recovery from the bird influenza has been slow, pushing egg prices up again.

Led by declines in the construction and mining sector, the Midwest Economy Index (MEI) decreased to −0.12 in July from a neutral reading in June. The relative MEI declined to −0.08 in July from +0.12 in June. July’s value for the relative MEI indicates that Midwest economic growth was slightly less than what would typically be suggested by the growth rate of the national economy.