Federal Reserve Bank of Chicago
Summary of Economic Activity
Economic activity in the Seventh District increased slightly overall during the reporting period, and contacts expected a similar increase in activity over the next year. Consumer and business spending rose modestly; employment was up slightly; construction and real estate activity was flat; nonbusiness contacts saw little change in activity; and manufacturing activity decreased modestly. Prices were up modestly, wages rose moderately, and financial conditions loosened slightly. Prospects for 2024 farm income were unchanged.
Labor Markets
Employment increased slightly over the reporting period, and contacts expected growth to continue at a similar pace over the next 12 months. Contacts continued to mention difficulty finding higher-skilled workers, including in the skilled trades and administrative fields. However, there were also reports of softening in the labor market, particularly in manufacturing. One contact at a manufacturing business group noted that hiring was slowing among their members, though layoffs were not widespread. Some manufacturing contacts facing declining orders said they were cutting hours rather than laying off workers in the hope that demand would pick up in the coming months. A staffing firm also saw less hiring by manufacturers, particularly from the auto industry. Wages and benefits costs continued to rise moderately overall. One retailer said that their wage increases reflected growth in their region's cost of living. In contrast, there were reports of forgone cost of living adjustments in manufacturing and lower holiday bonuses for workers in trucking.
Prices
Prices increased modestly overall in October and early November, and contacts expected a similar rate of increase over the next 12 months. Producer prices moved up modestly. Nonlabor input costs rose, with increases for energy, equipment, and property insurance. Shipping costs ticked up. Several contacts reported no change in prices for raw materials, though a few in construction noted higher costs for some plastic and metal components. Consumer prices again rose modestly overall.
Consumer Spending
Consumer spending increased modestly on balance over the reporting period. Nonauto retail sales moved up overall, helped by growth at discount stores and autobody shops. Price sensitivity again increased. For example, a grocery contact said consumers were now shopping around for basic items such as canned goods. Consumers also continued to selectively "trade down," such as by shrinking the size of home improvement projects while still using high quality materials. Leisure and hospitality spending was up, with higher spending on air travel and at fast food and fast casual restaurants. Light vehicle sales increased modestly, boosted in part by higher incentives aimed at reducing inventories of some new vehicles.
Business Spending
Business spending increased modestly on balance in October and early November. Capital expenditures moved up slightly. Demand for truck transportation edged up from a low level, with one contact noting that order flow was more sporadic. Retail inventories decreased slightly and were generally at comfortable levels, while manufacturing inventories were slightly elevated. Retailers were planning to build up inventories in anticipation of higher tariffs and one construction input supplier was actively doing so. In addition, a computer retailer noted an increase in sales in recent weeks as business clients pulled ahead replacement plans to avoid expected higher prices for imported electronics.
Construction and Real Estate
Construction and real estate activity was unchanged on balance over the reporting period. Residential construction activity increased slightly. One contact shared that single-family rental construction was growing and had taken market share from single-family build-to-own. Residential real estate activity decreased modestly, as higher mortgage rates weighed on demand. Prices and rents were flat. Nonresidential construction activity was unchanged. Building continued to be focused on data centers, light advanced manufacturing facilities, and quick serve restaurants. Some contacts expressed optimism for next year, with one noting an increase in architectural inquiries at office design firms. Commercial real estate activity was unchanged, as were prices and rents. Vacancy rates increased slightly, but the availability of sublease space was unchanged.
Manufacturing
Manufacturing demand decreased modestly in October and early November. Orders for steel were down modestly from an already low level, and one contact expected demand to remain low in the coming months. Fabricated metals orders were flat overall, with contacts highlighting growth in defense but fewer orders from the auto industry. Machinery sales decreased moderately, driven by weaker demand from the construction and automotive industries. Heavy truck manufacturing demand fell modestly.
Banking and Finance
Financial conditions loosened slightly in October and early November. Though bond prices fell, equity values rose, and volatility declined some on net. Business loan demand increased modestly, led by growth in commercial and industrial volumes. Business loan rates and terms were stable, and loan quality was flat. In the consumer sector, loan demand was flat, with contacts highlighting higher home equity loan volumes but fewer loans for boats and RVs. Consumer loan rates were a little lower, and terms were stable. Consumer loan quality was unchanged.
Agriculture
Farm income expectations for 2024 continued to be for a decline from 2023, as corn and soybean prices stayed below year-ago levels. Strong corn and soybean harvests reflected good growing conditions this year, with record corn yields for the District and soybean yields up from the last two years. Crop quality was excellent, with very low moisture levels. Tomatoes grew well, resulting in a "best ever" crop according industry contacts. Over the reporting period, corn prices increased, triggering selling by some farms, while soybean prices fell. Egg, hog, and milk prices increased, while cattle prices were flat. Agriculture faced fewer logistical hurdles as rail traffic improved and recent precipitation raised water levels on the Mississippi River, easing the slowdown in barge traffic. Farm equipment sales were slow given falling prices for trade-ins and sticky high prices on new equipment.
Community Conditions
Community, nonprofit, and small business contacts saw little change in activity over the reporting period. Many contacts reflected a "wait and see" sentiment given the upcoming change in presidential administrations and uncertainty around the path of interest rates. State government officials saw flat income and sales tax revenues, though several mentioned strong growth in gambling tax revenues. Affordable housing developers welcomed slight declines in building costs, noting the potential for increased affordability for low-income, low-equity, or first-time buyers. Overall, affordable housing supply remains constrained, and contacts noted particularly limited supply in small and rural markets. Nonprofit leaders continued to be challenged to secure enough funding for high-demand programs—such as childcare—as well as for operating and overhead costs. Community contacts noted that subsidies for utility costs were more limited this year because funds had been used for high summer cooling bills.
For more information about District economic conditions visit: https://chicagofed.org/cfsec.