Capitol Fax.com - Your Illinois News Radar

Trouble ahead?

Posted in:

Illinois

Local economic conditions have taken a bearish turn, possibly suggesting that the long-awaited recession is near.

That’s the bottom line of the latest Survey of Economic Conditions by the Federal Reserve Bank of Chicago, which found that conditions by some measures are the worst since much of the economy effectively shut down right after COVID hit.

The survey, based on questionnaires sent to key business leaders in the five-state Chicago Fed region, found that a measure of overall economic activity in April hit -37. That’s a sharp drop from -8 in March, “well below trend” according to the Fed, and the lowest since the COVID-sparked 2021 recession — except for July 2022, when it also was -37.

The decline in activity is particularly pronounced in the manufacturing sector, whose April rating of -55 was easily the lowest in three years.

* From that Chicago Fed Survey of Economic Conditions…

The Chicago Fed Survey of Economic Conditions (CFSEC) Activity Index decreased to –37 in April from –8 in March, suggesting that economic growth was well below trend. The CFSEC Manufacturing Activity Index decreased to –55 in April from –7 in March, and the CFSEC Nonmanufacturing Activity Index decreased to –24 in April from –9 in the previous month.

• Respondents’ outlooks for the U.S. economy for the next 12 months deteriorated and remained pessimistic on balance. Sixty-five percent of respondents expected a decrease in economic activity over the next 12 months.
• The pace of current hiring decreased, as did respondents’ expectations for the pace of hiring over the next 12 months. Both hiring indexes remained negative.
• Respondents’ expectations for the pace of capital spending over the next 12 months decreased, and the capital spending expectations index remained negative.
• The labor cost pressures index was unchanged, but the nonlabor cost pressures index increased. Both cost pressures indexes remained negative.

Chart…

Oof.

* Business story roundup from Isabel…

Bloomberg | Wall Street boosts states’ credit scores even as recession worries loom:

* Joe Cahill | Buyback returns are shriveling: The median “buyback effectiveness” rate, or BER, for the 363 companies in the study fell to -1.1%, a four-year low. The 24 Illinois companies included in the survey fared slightly better, with a median BER of -0.8. […] Some big names in Chicago business were among the least proficient share repurchasers. United Airlines posted a -8.5% BER on $3.2 billion in buybacks, and medical products company Abbott Laboratories logged a -15.2% BER as it spent $7.5 billion repurchasing stock. Zebra Technologies brought up the rear locally, with a BER of -32.1% on $1.1 billion in buybacks. What does low buyback effectiveness mean? In the simplest terms, it means a company’s buybacks violate a fundamental rule of investing: buy low.

* Crain’s Daily Gist podcast | How tech can level Chicago’s economic disparities: Crain’s contributing columnist Orphe Divounguy chats with host Amy Guth on making markets more free, fair and competitive. Verizon store closing adds to Mag Mile’s woes; as United eyes Europe and business travel, Newark takes center stage; the hot market for industrial space; and ComEd wants a $247 million rate hike on top of the $1.5 billion hike already pending.

* AP | McDonald’s first quarter sales boosted by higher prices: McDonald’s reported higher-than-expected sales in the first quarter as store traffic grew despite higher prices. Global same-store sales rose 12.6% compared to the January-March period last year, the Chicago burger giant said Tuesday. That’s well above the 8.7% increase that Wall Street had been forecasting, according to analysts polled by FactSet.

* Crain’s | As home prices drop in more big metros, they’re still rising in Chicago: Chicago-area single-family home values rose 3.6% in February compared with February 2022, according to the S&P CoreLogic Case-Shiller Indices released this morning. That increase is on top of a 13.1% increase a year ago, meaning prices continue to beat those from the boom time.

* Sun-Times | As Walmart pulls back, businesses and neighborhoods need to talk: The Walmart retreat follows other big chains that ventured into mostly Black and Hispanic areas here in recent years. Aldi, Target and Whole Foods come to mind. When it happens, there’s a certain repetitiveness to the fallout. Residents express shock and anger. Retailers express regrets, maybe, but shed little light on internal thinking or financial results.

* Daily Herald | With manufacturing booming, Schaumburg looks to modernize 60-year-old industrial park: A study of the area’s eligibility for a tax increment finance district is among the projects included in Schaumburg’s 2023-24 budget, which is scheduled for final approval Tuesday and will take effect May 1. Schaumburg Economic Development Director Matt Frank said the goal of the study — and the TIF district that could follow — is to modernize the six-decade-old area, not reinvent its identity.

* Crain’s | Ariel’s co-CEOs share their Buffett-style approach to investing during market turbulence: So anything that has any cyclicality to it has had a really tough time. Anything that has any ties to the housing market has had a very difficult time. So we’ve been leaning in those areas, buying more of our favorite names. So like in the housing area, a company like Mohawk that makes carpeting is an extraordinarily cheap stock to us. We’ve been adding to private equity firms, like Carlyle. We’ve added to the Bank of Oklahoma, taking advantage of the dislocation that we’ve seen in the financial services sector of the marketplace. And then in some of our light cyclicals, we’ve also been adding there and finding opportunities in companies like Resideo (a Honeywell spinoff that offers home automation solutions, such as smart thermostats). Those kind of light cyclicals we think are very cheap in this environment.

* Politico | Illinois corporate board diversity slow going: A state law designed to diversify Illinois-based corporate boards is having mixed results, though House Speaker Emanuel “Chris” Welch, who sponsored the legislation, remains optimistic about the data. The numbers are meh: While women’s representation on corporate boards has reached more than 20 percent on average, they are underrepresented in most companies compared to their workforce. And non-white minorities are even more underrepresented relative to the state’s population.

posted by Rich Miller
Tuesday, Apr 25, 23 @ 11:51 am

Comments

When the $1 McDouble becomes the $2.70 McDouble over the course of a decade (never mind that it originally started as a $1 Double Cheese Burger) and over that same decade one’s income doesn’t increase by 170% businesses can expect to sell fewer McDoubles.

Businesses can claim that their price increases was caused by inputs, but they strike a different tone on their earnings calls.

Comment by Candy Dogood Tuesday, Apr 25, 23 @ 12:12 pm
After school and before my career, I worked in a warehouse in the Schaumburg industrial park for a few years. Surely it can’t be 60 years old.

Comment by ddp76 Tuesday, Apr 25, 23 @ 12:17 pm
–possibly suggesting that the long-awaited recession is near.–

long-awaited? That’s an interesting choice of words.

It’s been the drumbeat in certain circles for over a year now, mostly pushed on the hardest right before the election last year - coincidentally I’m sure. Eventually they will be correct, because recessions are features, not bugs, of capitalism.

Comment by TheInvisibleMan Tuesday, Apr 25, 23 @ 12:45 pm
Businesses can claim that their price increases was caused by inputs

Min wage in 2015 was $8.25 current pay at Mcdonald’s in Dupage/Cook $15.00 and the min wage in 2025. That’s an 81% increase - so labor is a huge part of that input costs.

Comment by Donnie elgin Tuesday, Apr 25, 23 @ 12:53 pm
===Min wage in 2015 was $8.25 current pay at Mcdonald’s in Dupage/Cook $15.00 ===

lol

These are national price increases, not local.

Comment by Rich Miller Tuesday, Apr 25, 23 @ 12:58 pm
Oh no… Buyback returns are down. They might have to actually consider investing in improving and/or expanding their businesses. How will they ever survive?

Comment by Benniefly2 Tuesday, Apr 25, 23 @ 12:59 pm
“After school and before my career, I worked in a warehouse in the Schaumburg industrial park for a few years. Surely it can’t be 60 years old.”

Back when there was that weirdly large gap of empty land between Albion and Pratt? I think I recall that.

This could be an interesting use of TIF. Doing a fully study is definitely the best way to start.

Comment by Proud Sucker Tuesday, Apr 25, 23 @ 1:48 pm
Fed needs to pause. Downside risk too great with banks failing, and the crazy Republicans threatening to blow up America’s credit.

Comment by PublicServant Tuesday, Apr 25, 23 @ 7:11 pm