Beige Book Report: Chicago
November 29, 2023
Summary of Economic Activity
Economic activity in the Seventh District was up slightly overall in October and early November. Contacts generally expected a small decline in demand over the next year and many continued to express concerns about the potential for a recession. Employment increased moderately; business spending was up slightly; nonbusiness contacts saw little change in activity; consumer spending and construction and real estate activity decreased slightly; and manufacturing was down modestly. Prices and wages rose moderately, while financial conditions tightened slightly. Expectations for farm incomes in 2023 were little changed.
Labor Markets
Employment rose moderately over the reporting period and contacts expected a similar rate of increase over the next 12 months. Some manufacturers continued to have difficulty finding workers, particularly higher skilled ones. However, there were also signs that the labor market was cooling. Some contacts said their applicant pools had grown and that turnover had declined. And some contacts in construction, real estate, and finance reported taking down job postings, while others in those sectors were planning for layoffs. Wage and benefit costs rose moderately, but several contacts said wage pressures had cooled.
Prices
Prices rose moderately in October and early November and contacts expected a similar rate of increase over the next 12 months. Nonlabor costs were up moderately, in part because of increases in energy and shipping costs. Some contacts noted that while they had fewer supply chain issues, raw materials remained expensive. A few producers said that they were getting more pushback on price increases. Consumer prices moved up moderately due to solid demand and the passthrough of higher costs.
Consumer Spending
Consumer spending decreased slightly on balance over the reporting period. Nonauto retail spending was up slightly. Contacts highlighted higher spending on luxury items, new product lines, lower-priced items at outlet stores, and at e-commerce websites. However, a processor of product returns reported that returns of clothing and electronics were down, which is an indicator of lower sales of those items. In the leisure and hospitality sector, spending fell on air travel and hotels. Light vehicle sales decreased modestly overall. New vehicle sales were down but held up better than expected in light of the UAW strike, with several dealers commenting they saw little effect from the strike. Used vehicle sales fell. Contacts noted that lower-end used vehicles were selling faster than higher-end models.
Business Spending
Business spending increased slightly in October and early November. Capital expenditures moved up slightly, with several contacts reporting purchases of new software. That said, a number of contacts said higher interest rates and tighter lending standards were leading them to hold off on investments until credit conditions loosen. Demand for heavy truck transportation services declined moderately. Residential and commercial electricity usage decreased modestly, but industrial electricity consumption was up some, with one contact noting an increase after the end of the UAW strike. Inventories for most retailers were near desired levels. According to contacts, the UAW strike had little effect on overall auto inventories. In manufacturing, inventories were generally a little high. Most contacts noted fewer input shortages overall, though some remained, including for specialty electrical and polymer components.
Construction and Real Estate
Construction and real estate activity decreased slightly on net over the reporting period. Residential construction was down slightly with demand for major remodeling projects falling substantially. According to a survey, homebuilders were more pessimistic about activity in the coming months than they had been earlier in the year. Residential real estate sales decreased slightly, while continued low home inventories supported a slight increase in prices and rents. Nonresidential construction activity was unchanged as were prices of new construction. Contacts again reported that high interest rates were forcing previously financially viable projects to be delayed indefinitely. Commercial real estate activity declined slightly, though vacancy rates and the availability of sublease space also fell. Prices and rents edged down. One contact reported that while leasing activity had held up, sales activity had fallen off.
Manufacturing
Manufacturing demand decreased modestly overall. Steel and fabricated metals orders ticked down, with contacts highlighting lower sales to the construction, automotive, and medical sectors. Machinery sales were down modestly, in part because of fewer sales to the automotive sector. Auto production declined on average over the reporting period, largely because of the UAW strike. Heavy truck demand decreased modestly.
Banking and Finance
Financial conditions tightened slightly on balance in October and early November. Bond and equity values were up some, while volatility fell. Business loan demand decreased modestly, and loan quality was also down, with contacts highlighting struggles in the commercial real estate sector. One contact noted loan quality improvements in hospitality. Business loan rates increased modestly, and standards tightened slightly. Consumer loan demand fell modestly across most segments. Some contacts noted that home equity lending was up because consumers were avoiding mortgage refinancing. Consumer loan quality decreased slightly, notably in credit card lending. Consumer loan rates increased modestly, and standards tightened slightly.
Agriculture
Projected farm income in the District was little changed over the reporting period as both expenses and expected revenues moved lower. Despite widespread drought, there were reports of record yields across multiple states and crop types, including corn, soybeans, tomatoes, and wheat. One contact mentioned that early and dry spring planting contributed to better-than-expected crop yields. Corn and soybean prices dropped to their lowest levels in over two years, while wheat prices were flat. Costs were lower for key crop inputs, including fuel and fertilizer. Egg prices edged up, milk prices were flat, and butter prices were down. Cattle and hog prices both declined.
Community Conditions
Community, nonprofit, and small business contacts reported little change in economic activity from a robust level. State government officials saw some decline in tax revenues but continued low demand for unemployment insurance. Small business owners reported that high labor and capital costs were eroding profit margins. Nonprofit contacts were experiencing ongoing high demand for services, especially at food pantries, and expressed concern about lower levels of private funding, delayed receipt of public funding, and the end of COVID-era government support. Heading into the winter months, low- and moderate-income consumers were "piecing it together" to meet their needs for winter clothing in anticipation of higher housing, food, and heating costs.
For more information about District economic conditions visit: https://chicagofed.org/cfsec