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September 3, 2014

Seventh District Update, September 2014

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 remained moderate in July and August, and contacts maintained their optimistic outlook for the rest of the year.

• Consumer spending: Growth in consumer spending picked up to a moderate pace in July and August. Retailers reported noteworthy sales increases for apparel and lawn and garden items, but cited weaker growth at grocery stores. Promotional activity scaled back some, but remained high, as clearance sales have been effective at eliminating excess inventories. Light vehicle sales increased, particularly for mid-size sedans and crossover vehicles.

• Business Spending: Business spending continued to grow at a moderate pace in July and August. Capital expenditures and spending plans both increased, as more contacts reported capital expenditures to support capacity expansion, particularly in the auto and construction industries. The pace of hiring slowed slightly, though hiring plans ticked up.

• Construction and Real Estate: Construction and real estate activity increased over the reporting period. Residential construction, home sales, nonresidential construction, and commercial real estate activity all increased moderately.

• Manufacturing: Manufacturing continued to grow at a moderate pace in July and August. The auto industry remained a source of strength for the District and demand for steel increased further. Demand for heavy machinery picked up some on net, as higher demand for construction machinery overshadowed weakness for agricultural and mining machinery.

• Banking and finance: Credit conditions improved modestly in July and August. Business lending increased, with contacts noting continued growth in demand for the financing of equipment and commercial real estate from small and middle-market businesses. Consumer loan demand grew moderately, with an increase in credit card lending, continued growth in auto lending, and a slight uptick in new mortgage originations.

• Prices and Costs: Cost pressures increased, but remained modest. Energy prices remained elevated and steel prices were higher in spite of increased imports, as a large share of these imports remains at the docks due to customers’ unwillingness to pay elevated shipping surcharges. Retail prices were up slightly as contacts reported decreasing the generosity of sales promotions. Overall, wage pressures were modest, but a number of contacts again reported wage pressures for skilled workers.

• Agriculture: Corn and soybean production in the District should exceed last year’s levels. Corn, soybean, hog, and cattle prices were lower, while milk prices were higher.

Led by continued strength in the manufacturing sector, the Midwest Economy Index (MEI) increased to +0.62 in July from +0.56 in June. The relative MEI increased to +0.29 in July from –0.01 in the previous month, marking its first positive reading since February 2014. July’s value for the relative MEI indicates that Midwest economic growth was higher than would typically be suggested by the growth rate of the national economy.

Posted by Testa at September 3, 2014 3:21 PM


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