Federal Reserve Bank of Chicago

Summary of Economic Activity

Economic activity in the Seventh District increased slightly overall over the reporting period and contacts expected a similar increase over the next year. Consumer spending rose modestly; employment increased slightly; construction and real estate was flat; nonbusiness contacts saw little change in activity; and manufacturing and business spending decreased slightly. Prices increased modestly, wages rose moderately, and financial conditions loosened some. Farm incomes in 2024 were below those of 2023.

Labor Markets

Employment increased slightly over the reporting period and contacts expected growth to continue at a similar pace over the next 12 months. Some contacts continued to mention difficulty finding higher-skilled workers. However, there were also signs of softening in the labor market. One machinery manufacturer noted that labor had been easier to source recently, in part because nearby competitors were reducing hours or instituting layoffs. A fabricated metals manufacturer also said it was easier to hire and noted that absenteeism was down, while another planned to lay off some non-production workers should demand not pick up in the next few months. A retail contact noted that compared with last holiday season, stores were open about the same number of hours but hired fewer temporary workers and relied on existing staff to work more hours. Wages and benefits costs continued to rise moderately overall. Many contacts reported an increase in health insurance costs as new plans take effect in the new year.

Prices

Prices increased modestly overall in late November and December, and contacts expected a similar rate of increase over the next 12 months. Producer prices moved up slightly. Nonlabor input costs edged up, driven by increases in energy and overall shipping costs (truck freight rates were down). While most contacts reported some increases in raw materials prices over the last year, some highlighted flat or lower prices for certain inputs. Consumer prices again rose modestly overall. A retail contact indicated that they had not seen any anticipatory price changes in response to the potential for higher tariffs.

Consumer Spending

Consumer spending increased modestly over the reporting period. Nonauto retail sales were up modestly and close to expectations. Apparel, laptops, home entertainment electronics, and jewelry all showed strong sales growth. Retailers indicated that promotional offerings were similar to last year and that full-price sales were greater than expected. Leisure and hospitality spending ticked up, boosted by greater demand for air travel and at fast casual restaurants. Both new and used light vehicle sales rose slightly, as did leasing activity. Subcompact and compact vehicles continued to gain market share, though at a slower pace as excess inventories of mid- and full-size vehicles led to larger incentives on these alternatives. Contacts also reported a bump in electric vehicle sales.

Business Spending

Business spending decreased slightly in November and early December. Capital expenditures were down some, though expectations for spending over the next year moved up. Demand for truck transportation fell further, contributing to lower truck freight rates. Inventories at both nonauto retailers and auto dealers were comfortable overall, while manufacturing inventories were slightly elevated. There were few mentions of materials shortages, though several contacts again noted long lead times for power supply equipment.

Construction and Real Estate

Construction and real estate demand was unchanged over the reporting period. Residential construction was stable and demand for home renovation projects remained soft. The size of renovation projects continued to shrink. Residential real estate activity decreased slightly, held back by the recent rise in mortgage rates and ongoing tight inventory levels. Prices were unchanged, while rents increased slightly. Nonresidential construction activity was flat overall, though project pricing increased modestly in recent weeks. Commercial real estate activity was unchanged, as were prices, rents, and vacancy rates.

Manufacturing

Manufacturing demand decreased slightly in late November and December and several manufacturers expected January and February orderbooks to continue to be soft. Demand for steel was at a low level as sales to the construction and machinery sectors remained subdued. Sales of steel for renewable energy products were a bright spot in 2024 but slowed toward the end the year. Fabricated metals sales decreased modestly overall, though there were reports of increased demand from the medical equipment industry. Machinery orders edged down, with several contacts noting decreases from the automotive industry. Auto production slowed some, while demand for heavy trucks rose.

Banking and Finance

Financial conditions loosened slightly in late November and December. Bond values ticked down, while equities were flat. Volatility was unchanged on net over the reporting period, though there was a large spike in mid-December. Business loan demand rose modestly, with several contacts noting increased M&A activity. Business loan quality remained flat on balance, though one contact noted deterioration among manufacturers. Business loan rates fell slightly and terms were again unchanged. Consumer loan demand increased slightly, while loan quality decreased some. Consumer loan rates edged down and terms loosened a bit.

Agriculture

Seventh District farm income for 2024 was down from 2023, despite stronger-than-expected corn and soybean yields. Compared with an average year, income was about average for agriculture operations overall, but low for crop farmers. Contacts expected a further decline in income in 2025, with overall input costs expected to be roughly unchanged and product prices expected to be flat or down. Prices for corn, cattle, and cheese increased over the reporting period, while prices for soybeans, wheat, and dairy were flat. Hog prices declined. Egg prices jumped along with flock liquidations due to avian influenza, and there were concerns about avian flu spreading beyond the poultry sector. Slow farm equipment sales led manufacturers to offers of interest-free payment plans to entice borrowers. Contacts expected that smaller margins in 2024 and 2025 would require many farmers to borrow more; they also indicated that many loans made three to five years ago will soon reprice to higher interest rates. The farm sector will receive additional payments from the federal government to help cover disaster losses and lower product prices.

Community Conditions

Community, nonprofit, and small business contacts saw little change in economic conditions over the reporting period. Contacts were less likely to mention inflation than in prior periods, and more likely to mention softening in the labor market. State government officials saw mixed growth in tax revenues. Concerns around the lack of supply of affordable housing remained top of mind for community contacts, especially in the District's smaller markets, with some observing increases in homelessness and "couch-hopping." While nonprofit contacts reported healthy year-end donations, they also noted significant increases in operating costs, especially for insurance, and persistent high demand for their services. Higher costs led some nonprofits to close, leaving others to fill the gap by increasing efforts to find new sources of funding and support.

For more information about District economic conditions visit: https://chicagofed.org/cfsec.

Last Update: January 15, 2025