Federal Reserve Bank of Chicago
Summary of Economic Activity
Economic activity in the Seventh District increased slightly overall in July and early August, and contacts generally expected a similar rate of increase over the next 12 months. Employment and business spending rose slightly; manufacturing activity and consumer spending were flat; nonbusiness contacts saw little change in activity; and construction and real estate activity edged down. Prices were up modestly, wages rose moderately, and financial conditions were little changed. Prospects for 2024 farm income declined some.
Labor Markets
Employment rose slightly over the reporting period, but contacts expected job growth to pick up to a modest pace over the next 12 months. Many contacts continued to note difficulty filling higher skilled positions. That said, there were signs of softening in the labor market. Contacts in both the manufacturing and service sectors reported layoffs or shift reductions in response to slower demand. One contact said they were only recruiting to backfill vacated positions, and a fabricated metals manufacturer had paused hiring until demand from the housing sector picked up. In addition, a contact at a chamber of commerce noted that in a recent survey inflation had taken over from labor availability as their members' top concern. Wages and benefits costs continued to rise moderately.
Prices
Prices rose modestly overall in July and early August, and contacts expected a similar rate of increase over the next 12 months. Producer prices moved up modestly. Nonlabor input costs, including those for energy and raw materials, continued to increase, though at a slower pace than in the prior period. Consumer prices also rose modestly, with one retail sector contact noting that general merchandise inflation had slowed.
Consumer Spending
Consumer spending was little changed overall during the reporting period. Nonauto retail sales were flat. Large retailers' annual summer promotions were about average in size, and one contact said the start of the back-to-school shopping season was "decent." However, sales were down at discount stores and in the furniture, appliances, lumber, and building materials segments. Leisure and hospitality spending was little changed on net, with growth for restaurants and amusement parks offset by declines in tourism. Light vehicle sales were up slightly, supported by higher incentives.
Business Spending
Business spending increased slightly in July and early August. The pace of capital expenditures slowed modestly, with several contacts mentioning that they had decided to keep operating with their existing stock of equipment instead of purchasing new equipment. Contacts continued to note that high interest rates were putting a damper on their investment spending. Demand for truck transportation further declined, helping push already low freight rates even lower. Inventories for consumer goods were generally at comfortable levels, and one contact noted that retailers' inventory buildup for the holidays reflected "measured" sales expectations. Manufacturing inventories were slightly elevated. There were only a few, isolated instances of supply shortages; contacts again noted long lead times for electrical equipment such as standby generators and transformers.
Construction and Real Estate
Construction and real estate activity decreased slightly overall over the reporting period. Residential construction activity was up slightly. Contacts in environmental engineering reported that they were busy with site reviews for single family homes, while other contacts noted slowing demand for large multifamily construction. Residential real estate sales decreased slightly. Prices edged higher while rents were unchanged. That said, the number of active listings increased as did the average number of days on the market. Nonresidential construction activity was little changed. Contacts reported that advance bookings were solid, though rising costs led a fair number of in-progress projects to be put on pause. Demand remained strong for senior living projects and office refurbishments. Commercial real estate activity decreased slightly, as did prices and rents. However, vacancy rates edged down according to contacts. Demand for large industrial space slowed, while demand for mid-sized space was steady. Several contacts reported that a growing number of small retailers were struggling to stay in business.
Manufacturing
Manufacturing demand was flat on net in July and early August. Orders for steel fell slightly, with one contact noting softening demand from agricultural machinery manufacturers. Elsewhere in the machinery sector, sales rose modestly, with one contact highlighting greater demand from the oil and gas sector. Auto industry contacts saw steady demand, while heavy truck sales grew slightly. Fabricated metals orders were down modestly, driven by weaker demand from the construction industry.
Banking and Finance
Financial conditions were little changed on balance over the reporting period. Bond values ended the period higher while equity values were flat. Volatility spiked in the middle of the period then retreated to a moderately higher level by the period's end. Business loan volumes decreased slightly, with higher demand for construction loans more than offset by lower demand for commercial real estate loans and commercial and industrial loans. Business loan rates decreased slightly, and terms were unchanged. Business loan quality edged down. In the consumer sector, loan volumes were flat, while rates were down slightly and terms were little changed. Consumer loan quality decreased slightly, with several contacts noting higher delinquencies for credit card loans.
Agriculture
Expectations for farm income in the District continued to decline in recent weeks as corn and soybean prices fell further. Crop conditions were favorable across most of the District, though some areas were short on precipitation. Fall harvests were expected to approach previous records. Amidst low prices, farmers were holding higher-than-usual levels of crops in storage. Fruit and greenhouse revenues were coming in above average. Livestock operations benefited from lower feed costs. Cattle prices eased some but remained high relative to historic levels. Dairy and egg prices moved up, while hog prices were down slightly. In light of low crop prices and high interest rates, several contacts expected building financial stresses on less-productive farms.
Community Conditions
Community, nonprofit, and small business contacts saw little change in economic activity, though comments on a softening labor market were more prevalent than in recent reporting cycles. Reports on tax revenues from state governments were mixed, with little change on balance. Small business development centers noted an influx of interest in starting new businesses from people who had recently been laid off. Existing businesses were seeking financing to cover higher operating costs because the ability to pass price increases onto customers had "sailed." Leaders of nonprofit organizations continued to report high demand for their services and lower revenues, compelling some to dip into reserves. Help with utility, food, and housing costs were the leading requests from low-income consumers, according to social service contacts.
For more information about District economic conditions visit: https://chicagofed.org/cfsec.