July 29, 2009
Federal Reserve Districts
|Skip to content
Economic activity in the Seventh District remained weak in June and early July, but the pace of decline slowed from the previous reporting period. Consumer and business spending were sluggish. Manufacturing and construction activity remained at low levels, although both sectors showed some signs of improvement. Labor market conditions deteriorated, but the pace of job loss slowed. Credit conditions, although moderately improved, remained tight. Price and wage pressures were minimal. The outlook for crop production improved; crop and livestock prices fell as did costs for livestock operations.
Consumer SpendingConsumer spending continued to be sluggish in June and early July. Households remained price conscious, focusing on necessities and holding back on purchases of most big-ticket and luxury items. Retailers expected a poor back-to-school season and planned to maintain low levels of inventory until the uncertainty surrounding the state of the economy recedes. Contacts noted that tourism activity was down over the July 4th holiday weekend, even more so than last year's poor showing. In contrast, auto dealers reported higher sales, which helped to bring inventories more in line with typical levels. New incentives and interest in brands expected to be discontinued after this model year were both cited as contributors to increases in showroom traffic and sales. However, the closing of dealerships as a result of the GM and Chrysler bankruptcies was indicated to be negatively affecting local communities.
Business SpendingThe pace of business spending was also sluggish. Contacts again indicated that they were delaying capital expenditures until the general decline in economic activity abates. Labor market conditions in the District continued to deteriorate, due in large part to weakness in the manufacturing sector. However, while some additional layoffs and reductions in hours through mandatory furloughs were reported, the pace of job loss slowed from the previous reporting period. Hiring activity remained limited outside of healthcare and education, although a few contacts reported increasing hiring plans. Several auto assembly plants reopened in late June and early July, but a contact noted that many of these plants will be coming back on--line with fewer employees. Similar cuts were also expected for auto suppliers. In contrast, one supplier reported rehiring workers let go earlier in the year due to improving sales trends and expectations of greater auto production for the remainder of the year.
Construction and Real EstateConstruction activity in the District remained weak. Residential construction was low, especially for apartments and condominiums. However, several contacts noted either a bottoming out or small increase in sales of new single-family homes. The number of signed contracts declined at a slower pace with showroom traffic remaining slow but steady and cancellations declining. Many more foreclosed homes reached the stage of repossession and sale, putting downward pressure on home prices. Contacts in the mortgage industry reported a small increase in purchase applications. Nonresidential construction declined, led by the commercial and industrial sectors where high vacancy rates remained a concern. In contrast, public sector construction increased. Furthermore, a contact noted that several large nonresidential projects which recently broke ground and additional projects in the pipeline suggest a small increase in activity in the coming months. Credit continued to be tight for residential and commercial developers.
ManufacturingManufacturing activity remained weak, but conditions improved from the previous reporting period. Manufacturers of medium and heavy trucks and heavy machinery continued to report weak activity. The shutdown of several auto plants was reported to have had negative impacts, but contacts also noted that the quick resolution of the Chrysler and GM bankruptcies had been beneficial for business confidence. Conditions remained weak for auto suppliers, and contacts indicated that financial support from the automakers may be necessary at some point to prevent a loss in production capacity. Automakers reported some signs of firming in prices and a return to comfortable levels of inventories, and have scheduled a pickup in production in July. In addition, demand from overseas was noted to have picked up, and pharmaceutical production remained strong. Steel production increased as service centers looked to replenish their inventories. One contact in the steel industry said that orders had filled the reduced capacity levels through the summer and that consideration was being given to bringing some idle capacity back on-line later in the year. Other metals-related industries noted soft conditions.
Banking and FinanceCredit conditions in the District remained tight, but improved moderately from the previous reporting period. Consumer credit demand stabilized at a low level as standards remained tight. Banking contacts indicated that loan quality had been better than expected, reflecting smaller increases in unemployment and increases in transfer payments from the recent economic stimulus package. Business loan demand remained weak with standards still tight and most firms reluctant to borrow. Terms continued to tighten in commercial real estate, as contacts indicated that loan quality was likely to continue to deteriorate. However, contacts noted that, in general, bankruptcies had slowed and that financing costs for a number of area corporations had improved along with the rise in equity prices. A number of financial sector contacts expressed concern that the uncertainty surrounding the regulatory environment was potentially having harmful consequences for credit creation. In addition, some were concerned about the limited time frame being discussed to implement new rules and regulations.
Prices and CostsPrice pressures were mixed, with energy prices falling and some material prices rising. A number of contacts noted declining gasoline prices in July. In contrast, contacts reported higher steel prices, with further increases expected by summer's end due to lean supplier inventories. The closing of several lumber mills contributed to increasing plywood prices. Prices of other industrial metals like copper and aluminum were little changed. Wage pressures were limited, although some contacts noted continued cuts to benefits. In the retail sector, recent increases in the minimum wage reportedly led to cutbacks in hours. Pass-through of wage and price pressures to downstream prices was minimal as contacts indicated that pricing power remained limited.
AgricultureCorn and soybean prices declined during the reporting period. Crop conditions remained better than last year, and markets were surprised by an increase in corn acres planted. Moreover, District farmers planted more acres of both corn and soybeans than a year ago. Although crop maturation was behind the typical pace due to planting delays, favorable weather in June and early July improved the outlook for both corn and soybeans. Lower demand for livestock feed also contributed to the decline in crop prices. Reduced costs for feed were not enough, however, to offset continued low prices for dairy, hogs, and cattle. One contact expressed the view that agriculture has lost the financial cushion that was built up in previous years. Many farmers forward contracted only a relatively small portion of their production and were not well prepared for the quick decline in crop prices. In addition, some livestock herds have been liquidated, as producers were unable to secure financing for operations.