Labor Markets

Employment rose moderately in July and early August and contacts expected a similar rate of increase over the next 12 months. Many contacts continued to have difficulty finding workers, particularly those with higher skills. However, many also said hiring had become easier, and a staffing agency noted a decline in worker turnover. Manufacturers were responding to slowing demand by using fewer temporary workers and cutting workers’ hours. Wage and benefit costs rose moderately, though several contacts noted a slowdown in the pace of wage increases.

Prices

Prices rose moderately over the reporting period and contacts expected a similar rate of increase over the next 12 months. Nonlabor costs were up modestly, with a number of contacts highlighting rising energy costs. Contacts noted slower growth in prices for some raw materials and price decreases for others. Shipping costs were little changed, remaining much lower than a year ago. Consumer prices increased moderately due to solid demand and the passthrough of higher costs.

Consumer Spending

Consumer spending increased slightly overall in July and early August. Nonauto retail sales increased modestly. Multiple retail contacts noted that back-to-school shopping got off to a strong start. Sales of nondurable goods were largely up, with contacts highlighting increases at grocery stores, gas stations, and convenience stores. In contrast, reports on sales of durable goods were mixed. Retailers expressed a considerable amount of uncertainty over the upcoming holiday season, and contacts said orders for the second half of this year were conservative. Leisure and hospitality spending softened slightly but remained at elevated levels; declines in air travel and hotels more than offset higher spending at tourist attractions and amusement parks. New and used light vehicle sales rose, helped by greater availability of more affordable models.

Business Spending

Business spending increased slightly in July and early August. Capital expenditures were up a bit, with several contacts reporting purchases of new equipment or software, or expansions of existing facilities. Demand for industrial, commercial, and residential energy grew slightly. Inventories for most retailers were a little higher than desired. Auto inventories were little changed and at a low level. In manufacturing, inventories were slightly elevated amidst slow demand.

Construction and Real Estate

Construction and real estate activity was little changed on balance over the reporting period. Residential construction increased slightly overall, and contacts noted that low levels of existing home inventory were making new homes more attractive. However, some contacts saw a slowdown in multifamily construction. Residential real estate activity decreased slightly as low inventories held back sales. Contacts indicated that homes were selling quickly, and many received multiple offers. A banking contact said that borrowers they had prequalified for mortgages were often switching to new construction after getting frustrated searching for an existing home. Home prices and rents were up slightly. Nonresidential construction was little changed. Some contacts noted a pullback in leading indicators of future activity such as environmental studies, land surveys, and financing for speculative development. In contrast, contacts noted progress on a large number of state and local construction projects. Commercial real estate activity was unchanged. Commercial prices fell slightly and rents were down modestly in some sectors, most notably office. Contacts said many investors were holding off making commercial real estate purchases because they expected prices to fall further. Vacancy rates were unchanged.

Manufacturing

Manufacturing demand decreased slightly in July and early August. Supply chain conditions continued to improve, though some contacts reported difficulty acquiring specialty items like industrial electrical components. Steel orders decreased modestly, in part due to weaker demand from the oil and gas and the machinery industries. Fabricated metals orders remained flat. Machinery sales decreased slightly, with contacts highlighting less demand from the auto industry. In contrast, auto industry contacts reported increased auto production despite supply chain disruptions at some plants. Several contacts expressed concerns about the potential for a UAW strike to put a hold on a large share of US auto production. Heavy truck orders decreased slightly amidst moderately low inventories.

Banking and Finance

Financial conditions tightened moderately over the reporting period. Bond and equity market asset values decreased slightly, and volatility edged up. Business loan demand decreased modestly over the reporting period, while loan quality remained flat. Business loan rates increased a bit and standards tightened moderately. Consumer loan demand also decreased modestly. Consumer loan quality deteriorated some, with multiple contacts noting an increase in credit card debt and one reporting that delinquencies for auto and card debt had risen back to precovid levels. Consumer loan rates were moderately higher and lending standards tightened moderately.

Agriculture

District farm income expectations for 2023 remained much lower than 2022 levels. However, reduced costs for some inputs, particularly fertilizers, boosted net income prospects for 2024. Drought concerns lessened overall, although hot weather toward the end of the period impaired development of a wide swath of Midwest crops. Corn, soybean, and wheat prices were down. Still, there were reports of a slowdown in exports as prices offered by other producers were more favorable on world markets. Hog prices moved down after hitting a seasonal peak. Prices for dairy products rose from low levels, and egg prices crept up a bit. Cattle prices increased once again, remaining one of the few agricultural prices above the levels of a year ago. Farmland prices were still higher than a year ago.

Community Conditions

Community, nonprofit, and small business support contacts reported little change in economic activity from a robust level. State government officials saw slowing growth in tax revenues and a small increase in demand for unemployment insurance. Some small business lenders noted a slowdown in loan demand, which they attributed to economic uncertainty. Nonprofit contacts continued to experience challenges with wage competition from private sector employers, as well as an increase in other operational costs. Nonprofit organizations also said high demand for services was straining efforts to respond to elevated levels of food insecurity.