March 4, 2026
Summary of Economic Activity
Economic activity in the Seventh District rose slightly over the reporting period and contacts expected a slight increase in activity over the next year. Manufacturing demand rose modestly; consumer spending and construction and real estate activity rose slightly; employment and business spending were flat on balance; and nonbusiness contacts saw no change in economic activity. Prices and wages rose moderately, and financial conditions loosened modestly. Farm income in 2026 was expected to be similar to 2025.
Labor Markets
Employment was flat over the reporting period and contacts expected a slight increase in hiring over the next 12 months. Contacts generally reported stable labor market conditions, with one contact calling it a "no hire, no fire" environment. That said, there was still some interest among contacts in raising head counts, and there were reports of challenges finding certain workers. For example, an employment placement agency reported higher demand for experienced IT staff, and manufacturers and construction contacts continued to say it was difficult filling positions for skilled workers. Wages and benefits costs rose moderately. Several contacts said they received large increases in quotes for health insurance plans, which had led them to shop around and consider benefits cuts.
Prices
Prices rose moderately overall in January and early February and contacts expected a similar pace of growth over the next 12 months. Producer prices were up moderately. Contacts reported a moderate increase in nonlabor input costs and highlighted higher prices for raw materials and energy. However, some construction contacts saw costs decline in recent weeks. Manufacturers continued to attribute increases in some raw materials prices to tariffs and described various degrees of tariff pass-through. Some manufacturing contacts reported that they had been and would continue to pass on the full cost of tariffs to their customers; one said that after splitting the cost of tariffs with their customers in 2025, they planned to pass the full cost on in 2026. Consumer prices rose moderately, and a retail industry analyst noted that some tariff-related price increases are still on their way.
Consumer Spending
Consumer spending increased slightly over the reporting period. Non-auto retail spending rose modestly. Contacts highlighted increases in jewelry and apparel purchases, while computers, electronics, furniture, and appliances lagged the pace of overall spending growth and outlays for discretionary items softened. Several retail industry analysts said the potential for higher tax refunds than in previous years could spur sales growth in early 2026. Leisure and hospitality spending was flat overall: spending at restaurants rose while outlays at hotels, airlines, and tourist attractions declined. New light vehicle sales fell modestly with industry contacts noting the impact of inclement weather.
Business Spending
Business spending was flat on balance in January and early February. Capital expenditures increased slightly and contacts expected a slight increase in expenditures in the coming year. Demand for truck transportation declined slightly, and one contact noted that reduced capacity from winter storms caused freight rates to edge up. Retail inventories were lean, but comfortable, and manufacturing inventories were comfortable as well. Stocks of new vehicles were at desired levels, though stocks of used vehicles were low. There were few reports of shortages of raw materials, though several contacts mentioned a shortage of aluminum. Contacts across several industries noted long lead times for electrical components like transformers and computer chips.
Construction and Real Estate
Construction and real estate activity rose slightly on balance over the reporting period. Residential construction was unchanged. Lot sales remained steady, though some planned subdivisions were downsized. In multifamily, very little new supply was expected to enter the market over the coming months. One contact who was building new apartments indicated that they were able to purchase higher quality appliances than planned because of improved availability from suppliers. Residential real estate activity was unchanged. Home sales were flat, as were prices and rents. Realtors continued to offer incentives to spur sales, such as by lowering closing costs. Nonresidential construction increased slightly. Data center projects moved forward and buildouts of existing space continued. Contacts said that labor supply shortages due to retirements and immigration enforcement actions had led to project delays and higher costs. Commercial real estate activity increased slightly overall. Prices and rents held firm in the industrial market and concessions for newer space decreased. Contacts noted a rejuvenated secondary market for mid-size industrial spaces. However, in Michigan, some auto industry suppliers supporting the EV market had vacated space as regulatory changes have reduced demand for their products.
Manufacturing
Manufacturing demand rose modestly in January and early February. Chemicals production declined slightly, in part due to weaker demand from the automotive and medical device sectors. Steel sales rose slightly, with strength in demand from data center and energy infrastructure investment more than offsetting weakness in other construction sectors. Auto industry contacts reported a slight increase in demand and machinery sales increased modestly, while fabricated metals orders were flat and heavy truck production was stable.
Banking and Finance
Financial conditions loosened modestly overall in January and early February. Bond values increased slightly and equity values were unchanged. Volatility rose moderately. Business loan volumes were up slightly with reports of greater demand from large companies, including those investing in AI, and from the defense sector. Some contacts saw an increase in mergers and acquisitions as well. Business loan quality declined slightly, in part due to deterioration in the trucking and manufacturing sectors. Business loan rates fell modestly and terms were unchanged. In the consumer sector, loan demand was again flat. Consumer rates fell modestly, loan quality decreased slightly, and terms tightened slightly.
Agriculture
Contacts expected farm income for District producers in 2026 to be similar to 2025. High input prices, especially for fertilizers, continued to concern farmers. Crop prices increased a bit overall, as a decline in corn prices was offset by higher soybean and wheat prices. Farm income received a boost from trade-related government payments; nonetheless, some operators were selling crops from storage to cover bills and pay debts. Contacts expected increased government subsidies associated with the OBBBA to lead to an expansion of coverage and higher levels of participation in crop insurance. Livestock operations were generally under less financial pressure than crop farms. Dairy prices increased, and calves designated for beef production boosted the bottom line for many dairies. Cattle and hog prices were up, while egg prices declined. Slow sales of farm machinery left lots full at dealers. Commercial insurance costs have risen for farm supply and grain warehousing businesses.
Community Conditions
Community, nonprofit, and other nonbusiness contacts saw little change in economic conditions over the reporting period. They viewed the resiliency of the labor market as supporting these stable conditions, though low- and moderate-income consumers, very small businesses, and those facing barriers to employment remained stressed. State government contacts reported that employment and revenues held relatively steady. Contacts at organizations serving low-income consumers spoke of increased food insecurity across their communities; lack of affordable housing was a frequently mentioned cause. Small business contacts said high insurance and labor costs were putting pressure on profit margins.
For more information about District economic conditions visit: https://chicagofed.org/cfsec.