Midwest: Mixed Messages in the Middle

The Midwest—the West North Central states and the East North Central states from Ohio to North Dakota—is still feeling cautious when it comes to spending

ECONOMIC OVERVIEW

Despite some positive outcomes, its residents aren't optimistic about the rest of the year.

JOB LOSS

The Midwest made a marked recovery on the unemployment front from April 2010, when its jobless rate had hovered around 10 percent for several months, to April 2011, when it dipped down to 8.1 percent, according to the Bureau of Labor Statistics (BLS). Even Michigan, which had the nation's highest jobless rate (14 percent the last half of 2009), bounced back to 10.2 percent in April 2011.

BUILDING CONFIDENCE?

Despite their road to recovery, Midwest consumers remain cautious about displaying optimism. A mere 25.9 percent of consumers here said they were “confident” or “very confident” in May 2011 about the chances for a strong economy during the next six months, according to the BIGresearch Consumer Intentions & Actions Survey.

Lincoln, Neb., capital building

This represents the lowest consumer confidence of any region and is down five percentage points from May 2010.

Milwaukee Art Museum

Still, in May 2011, only 3.9 percent of Midwest consumers said they were concerned about being laid off, compared with the 9.1 percent two years earlier.

SPENDING OUTLOOK

Even though other regions remain harder hit, Midwesterners are looking to trim their budgets more than the residents of any other area.

When asked in May 2011 what specific changes they had made in the last six months, 45.3 percent said that they have become “more budget conscious,” up two percent from a year earlier.

A full 57.2 percent said they now focus more on what they “need” versus what they “want” (up from 53.3 percent in May 2010).

Almost 30.9 percent say they plan to decrease overall spending (up two percent from a year earlier).

INCREASED COSTS

Despite the fact that the overall U.S. Consumer Price Index (CPI/the prices paid by urban consumers for a representative basket of goods and services) rose by only 0.4 percent for the 12-month period ending in April, the CPI in the Midwest jumped up by 3.3 percent. As Midwesterners zipped up their pocketbooks, inflation took the cost of goods even higher here.

RETAIL REAL ESTATE

Slowed spending in the Midwest is delivering a trickle-down effect to the commercial real estate market, which is struggling to recover.

VACANCY RATES

Midwest retail vacancy rates remained at an unhealthy high of 13.1 percent in the first quarter of 2011 (up from 12.9 percent in 2009 and 11.4 percent in 2008), according to Reis, Inc., a New York City-based retail real estate forecaster.

“Retail real estate space has been basically treading water for the last three to four quarters and rents haven't really moved,” says Ryan Severino, senior economist, Reis, Inc. “There is really next to nothing being built right now."

RENTS

As vacancy rates tipped upwards, asking rents slipped down in the Midwest. In the first quarter of 2011, asking rents came in at $13.77 per square foot (PSF), compared with the $18.98 PSF rent commanded for the same time period for the U.S., according to Reis, Inc. This 2011 Midwest number is also down somewhat from $14.37 PSF in 2008.

Detroit's Ford Field

METRO MARKETS

Some Midwestern cities floundered in the economy as population growth flattened out.

“It's more likely we'll see higher vacancy rates in the parts of the Midwest where there has been some stagnant population growth or even population decline,” says Reis Inc.'s Severino.

Still, other urban centers in their region displayed some signs of growth and hope for a turnaround.

CITIES TO WATCH

Chicago is humming with increased retail activity. This market experienced a vacancy rate of 8.6 percent in the first quarter, which was down from the previous quarter, according to The CoStar Retail Report from the CoStar Group, a company that provides commercial real estate information.

Retail rents also went slightly over the previous quarter to $16.45 PSF. Unlike the rest of the U.S., the Chicago market actually raised 10 new retail buildings.

Detroit also displayed some positive signs, with a lowered vacancy rate of 10.3 percent and a rent that increased to $12.04 per square foot, according to CoStar.

FASHION TRENDS

According to Roseanne Morrison, fashion director at The Doneger Group, a trend and color forecasting service, the Midwest tends to embrace trends a little later. “On any trend…the Midwest is just slower to adapt,” she says.

Consumers in this region will still hop on the main trends for Fall 2011, giving them their own toned-down interpretations.

For example, the big move into color for the season's clothing might be watered down a bit with more muted hues or simple color accents on clothing or accessories.

SOLID FIT

The season's “return to good taste” trend is a solid fit for Midwestern fashion followers. Part vintage-inspired and part all-American sportswear, this trend delivers clean-cut, classic looks.

“Part of the impetus for this look: the bad economy has forced people to think about investing in clothing again as opposed to fast fashion,” says Morrison. “They are saying, ‘I want to buy this and wear it this year and next year and maybe the year after that.’”