Officially known as the Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Beige Book is a report published eight times per year on scheduled days. The 12 Federal Reserve Banks gather anecdotal information on current economic conditions in their respective Districts from business contacts, economists, market experts, community organizations, and other sources. The Beige Book contains a summary of the information written by each District’s Reserve Bank, as well as an overall summary of the District-level reports prepared by one of the Reserve Banks on a rotating basis.
The report on this page is the Chicago Fed’s latest contribution to the Beige Book. For the latest full report and for the archive of past full reports, visit the Board of Governors of the Federal Reserve System site.
Summary of Economic Activity
Economic activity in the Seventh District was little changed overall in late August and September. Contacts expected slow growth in the coming months, with many expressing concerns about the potential for a recession. Employment increased moderately, business spending was up slightly, consumer spending was little changed, manufacturing declined slightly, and construction and real estate activity moved down modestly. Wages rose rapidly, as did most prices, while financial conditions tightened moderately. Agriculture profit expectations for 2022 remained positive. Nonbusiness contacts reported that inflation continued to put pressure on household budgets.
Employment increased moderately in late August and September, and contacts expected a similar pace of growth over the next 12 months. Contacts reported difficulty finding workers across sectors and skill levels, though there were also reports that difficulties had eased some. A manufacturer noted poaching of salaried employees, but also somewhat easier hiring conditions for lower-skilled workers. A staffing firm indicated that demand from clients had slowed, though it remained at a high level. And a contact in healthcare saw an increase in the supply of nurses in their area as some who had taken temporary travel positions returned home. Overall, wage and benefit costs moved up strongly and were aimed both at attracting new workers and retaining existing talent. In addition to labor market tightness, contacts cited high inflation as an impetus for workers requesting wage increases.
Most prices rose rapidly in July and early August, though some commodity prices fell, notably for fuel. Contacts expected the pace of price increases to slow over the next 12 months. Aside from declines in certain commodities, producer prices continued to rise, spurred by passthrough of higher overall costs for raw materials, labor, and shipping. That said, growth in producer prices slowed across many categories. Consumer prices generally moved up robustly due to solid demand and passthrough of higher costs. However, fuel costs were down, and contacts noted a greater number of promotions on a range of retail products.
On balance, consumer spending was little changed over the reporting period. Nonauto consumer spending increased slightly, and retailers indicated that back-to-school shopping had met their expectations. Consumers continued to shift purchases toward essential, less premium items and away from discretionary spending. Spending on pet supplies, food, and seasonal items increased, while spending on apparel declined. Leisure and hospitality activity was down some. Light vehicle sales edged down but spending on auto parts and services increased noticeably.
Business spending increased slightly in late August and September. Capital expenditures were up modestly, with contacts highlighting the role of replacement demand for equipment and software. Commercial and residential energy consumption increased modestly, while demand for industrial energy consumption was down slightly. Retail inventories were elevated overall, and contacts said retailers were reducing orders and ramping up promotions to help pare them down. Auto inventories were stable and above their pandemic lows, but still well below pre-pandemic levels. In manufacturing, inventories were moderately elevated, partly because contacts were holding on to nearly completed products as they waited for missing parts and materials to arrive.
Construction and Real Estate
Construction and real estate activity decreased modestly on balance over the reporting period, and contacts pointed to higher interest rates as a key factor. Residential construction decreased slightly, and homebuilders expected a further slowdown over the coming year. Residential real estate activity decreased moderately, though home prices were up modestly due to limited supply. Residential rents increased moderately. Nonresidential construction was little changed over the reporting period, as was pricing. Long lead times for some materials persisted. Commercial real estate activity decreased modestly on weaker demand for office and retail space. In contrast, demand for industrial space remained robust. Prices were down slightly overall, and rents decreased modestly, while vacancy rates and sublease space availability moved up modestly.
Manufacturing demand was down slightly in late August and September. Contacts again reported that with slowing new orders, they were making headway on filling their large order backlogs. Output moved up modestly as manufacturers continued to struggle with labor availability and supply chain disruptions. Steel production decreased slightly overall, as demand slowed across a range of sectors. Fabricated metals demand was flat, with higher orders from the defense, medical, and aerospace industries offsetting declines in several other segments. Auto production was unchanged amid continued tight labor and supply chain issues, while heavy truck production picked up a bit as supply constraints in that segment of the industry eased. There was a small decrease in demand for heavy machinery.
Banking and Finance
Financial conditions tightened moderately over the reporting period. Participants in the equity and bond markets reported lower asset values and higher volatility. Business loan demand fell modestly, with contacts pointing to higher borrowing rates and elevated uncertainty as contributing to the slowdown. One contact highlighted a decline in lending to food and retail companies. Business loan quality was down slightly, and loan standards tightened slightly. In consumer markets, loan volumes decreased modestly, with contacts reporting drops in mortgage and auto lending in the face of higher interest rates. Consumer loan quality decreased some and standards were slightly tighter.
Income expectations for agricultural producers in 2022 were unchanged over the reporting period, with a profitable year expected for most despite elevated input costs. Contacts were optimistic that corn and soybean yields would be better than had been expected this summer, even with drought in parts of the District. Corn and soybean prices moved higher during the reporting period. Shipping costs, however, were elevated due to reduced barge capacity from low river levels. Dairy prices, most notably for butter, and egg prices, were up as well. Hog and cattle prices declined.
Community development organizations and public administrators reported some step-down in economic activity, especially in the housing market, though overall, the level of activity remained solid. Inflationary pressures continue to present challenges for low- and moderate-income individuals and families, as well as small businesses. State government officials again saw healthy growth in tax revenues over the reporting period. Unemployment insurance filings remained low. Small business development organizations said clients were borrowing not for growth, but to offset higher input prices. Nonprofits assisting low- and moderate-income households indicated that while fuel prices have eased, high grocery prices and elevated rents continue to strain household budgets, leading to strong demand for social services and other support. Childcare and early education providers reported ongoing elevated staffing vacancies due to the tight low wage labor market.
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