Federal Reserve Bank of Cleveland
Summary of Economic Activity
On balance, business activity in the Fourth District grew modestly in recent weeks, and contacts expected activity to increase further in the months ahead. Consumer spending increased moderately, with some retailers noting higher-than-anticipated sales. Demand for manufactured goods remained soft, a situation which some contacts attributed to uncertainty surrounding potential policy changes. Employment levels generally remained flat. While some manufacturers reported reducing headcounts because of low demand, some construction contacts added staff to support planned growth. Overall, wages and nonlabor input costs increased moderately, and prices grew modestly.
Labor Markets
Contacts reported that employment levels were flat overall in recent weeks, a trend which is largely unchanged from those seen during the previous four reporting periods. Among firms that were maintaining flat headcounts, several said that they were fully staffed to meet current demand, while others were focused on replacing departing workers. Many manufacturers continued to report reducing headcounts by eliminating shifts or by not replacing departing workers, often because of decreased order volumes. Still, many business services and healthcare contacts noted that they were hiring to meet increases in demand, while some construction and real estate contacts were adding staff to support planned business expansions and because of an anticipated market recovery. Overall, contacts expected modest employment growth in the months ahead.
Wages increased at a moderate pace on balance in recent weeks. Consumer-facing firms were among those reporting continued upward pressure on wages. Some of these firms had increased their hourly rates to attract entry-level workers, citing strong competition for these employees. Other contacts in manufacturing and business services also continued to increase pay to attract and retain workers with specialized skillsets such as machinists or accountants. Still, many firms held wages flat, citing improved labor availability, slowing inflation, or unchanged demand.
Prices
Nonlabor input costs increased moderately on balance in recent weeks. Some construction contacts said that their costs have been stable over the last two months, though two contacts expected materials costs to rise in the months ahead. Contacts across industries continued to report increases in the costs of healthcare benefits and insurance. Many restaurateurs and food producers said that costs were increasing for beef, dairy, cacao, and eggs. Overall, contacts expected costs to grow moderately in the coming months.
Overall, selling prices continued to grow modestly in recent weeks, though over half of contacts indicated that they had held prices steady. Many business services and construction firms continued to report raising prices, with several doing so based on the market conditions. While some retailers said that they had raised prices, others offered more discounts to drive sales amid elevated consumer price sensitivity. Citing softer demand, some manufacturers noted decreasing their prices to compete for business.
Consumer Spending
On balance, consumer spending increased moderately in recent weeks after a period of decline over several reporting periods, and contacts generally expected sales to increase modestly in the coming months. Most reports of stronger sales were centered on holiday shopping, and one grocer noted that "customers appear[ed] willing to spend more this holiday season." Reports from auto dealers remained mixed. Most dealers continued to report soft demand for new and used vehicles; however, two dealers reported unexpected increases in sales. Some auto dealers were optimistic about sales in the coming months as loan rates had fallen somewhat for customers with higher credit scores.
Manufacturing
Demand for manufactured goods was generally stable after declining for several reporting periods, and most firms reported no change in demand. Still, some manufacturers noted low demand related to general uncertainty about potential policy changes. By contrast, a small number of reports indicated higher orders, a circumstance which some contacts attributed to data center construction and others to greater overall confidence in the economy. Contacts generally expected demand to increase modestly in the coming months, with some noting that client inquiries and quotations had increased.
Real Estate and Construction
Residential construction activity increased modestly in recent weeks. Over two-thirds of contacts said that demand was unchanged since the prior reporting period; however, two homebuilders commented that their consistently strong demand was an improvement compared to the typical year-end lull. A single-family homebuilder who reported increased activity cited more stable mortgage rates and the resolution of uncertainty regarding the election as factors supporting sales. On balance, contacts expected demand to decrease slightly in the coming months.
Nonresidential construction and real estate contacts reported a modest increase in demand over the last two months. Contacts attributed this increase to greater certainty after the election and additional cuts to interest rates. One builder observed that large projects were moving forward after previously being on hold. Commercial construction and real estate contacts anticipated modestly increased demand in the months ahead.
Financial Services
On balance, bankers indicated that loan demand rose modestly since the last reporting period. One banker said that consumer demand for credit increased, while another said that lower interest rates and the end of election uncertainty increased demand for credit among businesses. Looking ahead, bankers anticipated that loan demand would increase further, an expectation which one attributed to continued improvement in consumer confidence. Delinquency rates were relatively unchanged from the last reporting period, while core deposits grew slightly in recent weeks.
Nonfinancial Services
Professional and business services firms indicated that activity increased modestly in recent weeks and anticipated that demand would increase strongly in the coming months. However, two contacts mentioned that some clients held off on new projects because of uncertainty surrounding the future of federal and state policy decisions. Freight contacts reported an increase in activity compared to that in the last reporting period, though several contacts noted that freight volumes remain low. Contacts expected demand to be largely flat over the next couple of months.
Community Conditions
Workers and jobseekers responded to a District survey about their recent labor market experiences. Workers across all education levels indicated that their most important reason for being employed was access to benefits such as health insurance, while their second most important reason was wages. Roughly 20 percent of workers reported having multiple jobs; many of these multiple jobholders were engaged in gig work because of the flexible scheduling. Over the next three months, most employed respondents indicated that they were unlikely to search for jobs, accept a different job, or stop working altogether. Respondents noted challenges in finding jobs that offer benefits and provide wages high enough to cover living expenses.
For more information about District economic conditions visit: https://www.clevelandfed.org/en/region/regional-analysis.