|Skip to content
Economic activity in the Seventh District continued to improve, but the rate of improvement slowed from April to May. Manufacturing continued to lead the way, and consumer and business spending also increased further. Construction activity improved slightly on the basis of increases in residential and public building. However, the gains in all of these sectors in May were somewhat slower than in April. Price pressures remained limited. Crop conditions were slightly better than normal for this time of year.
Consumer spending increased in April and May. Though contacts noted smaller gains than during the previous reporting period, they attributed most of the slowdown to the early Easter holiday drawing sales into March. Noticeable increases were seen in the home improvement and lawn and garden categories as consumers prepared for summer. Auto sales also continued to rise as buyers returned to showrooms to take advantage of favorable price and credit terms. In addition, the pace of tourism activity increased with warmer weather and lower hotel rates boosting demand. Retail contacts indicated that recent increases in income should translate into higher sales with the momentum carrying forward into the fall season.
The rise in business spending moderated from the previous reporting period. Inventory investment slowed. Contacts expect that manufacturers' will do only marginal restocking in the remainder of 2010, while retailers will rebuild inventories at least through fall. Labor market conditions improved. Contacts noted increasing signs that employment gains could be stronger in the second half of 2010. For example, they are seeing more job advertisements in categories associated with companies that are expanding employment. By sector, manufacturers continued to hire to fill skill-based needs and make use of previously idle capacity; and a large staffing firm reported billable hours rose in large part due to increasingly higher demand for industrial workers. Labor demand in professional and business services and retail trade also increased. Unemployment in the District remained above the national rate, with the average duration increasing. However, a contact noted that recently unemployed workers were re-entering the labor force more quickly than the previously unemployed.
Construction and Real estate
Construction activity improved slightly from the previous reporting period. Residential building benefitted to some degree from the homebuyer tax credit that expired in April, but contacts noted that activity pulled back in May. They expect construction in 2010 as a whole to be just slightly better than in 2009. New residential development remained minimal. Contacts indicated tight credit combined with the overhang of existing unimproved and distressed lots are likely to deter development for an extended period. Single-family home prices held steady, but downward pricing pressure continued to be strong for condominiums. Private nonresidential construction remained weak, as the elevated inventory of vacant industrial and retail properties continued to hold back demand for new construction. Public construction, however, increased with contacts noting more activity in highway, education, and medical projects.
Manufacturing activity was strong in April led by the automotive, energy, medical, and consumer goods industries, but the rise in production softened some in May. With sales holding up in recent months, a contact in the auto industry indicated that production was running at a steady pace. Capacity utilization in the steel industry leveled off, and a contact indicated that it was likely to stay around its current level for the next 3-to-4 months as the pace of inventory replenishment slows. For example, more manufacturers of industrial metals noted that they were buying only what material they could immediately manufacture and sell. In contrast, demand for heavy equipment was indicated to be finally turning a corner; dealers were rebuilding inventories and have seen a significant increase in demand for rent-to-sell fleets. Mining and agricultural equipment sales remained stronger than for construction equipment. Contacts indicated that the pipeline for the export of capital equipment abroad, particularly to Asia and South America, remains robust. The increase in residential construction in April led to an increase in activity for housing-related manufacturers with shipments of wallboard in the District up slightly as a result.
Banking and Finance
Credit conditions improved, on balance, in April and May. Volatility increased across financial markets, and short-term lending and corporate credit spreads widened due in part to the uncertainty surrounding Europe's fiscal crisis. However, a contact noted that the financial system now has "more cushion" to absorb the higher cost of credit given the ongoing improvement in U.S. economic conditions. In a sign of this effect, banking contacts again reported better loan quality. Lending, particularly among large banks, increased with loan demand firming and terms and standards beginning to open up a bit. Residential real estate financing improved with secondary market appetite for jumbo and ARM mortgages beginning to return along with greater availability of private mortgage insurance. Bank lending remained more limited for commercial estate. However, private equity appetite for multifamily properties continued to be strong, and a contact noted that real estate investment by European and Asian investors was also on the rise.
Prices and Costs
Price pressures were limited in April and May. Cost pressures from earlier increases in steel and energy prices were reported by several contacts, although the prices of both have decreased recently. Contacts noted that pressures from rising commodity prices were just starting to be noticeable and that the volatility of commodity prices was a greater concern. Wage pressures increased only modestly from the previous reporting period. Pass-through of cost pressures to downstream prices remained minimal, with pricing power in most industries continuing to be weak.
Crop conditions in the District were slightly better than normal for this time of year. Planting progress far exceeded that of a year ago with the exception of the southern portion of Iowa where heavy precipitation slowed field work. The emergence of corn plants was far ahead of average across most of the District, while soybean plant emergence was about typical. Rains were timely for the most part, but a period of cooler weather slowed crop development until hot and sunny weather gave a needed burst of energy to young plants in May. Corn and soybean prices remained in the same range as the prior reporting period, while wheat prices rose. Cattle and hog prices continued to rebound from last year's lows, as animal numbers were constrained. Milk prices stabilized after declines, remaining below break-even levels.