Federal Reserve Bank of Cleveland

Summary of Economic Activity

On balance, reports from contacts suggested that business activity in the Fourth District had increased slightly in recent weeks. Contacts generally expected business activity to increase slightly in the months ahead. Consumer spending increased slightly. General merchandisers said sales were strong for discounted items, and customers increased usage of "buy now, pay later" payment options. Manufacturers reported a recent increase in demand, and backlogs for 2024 were solid. Residential construction and real estate contacts said that activity was soft, while nonresidential construction activity had reportedly rebounded since the prior period. On balance, staffing levels were stable, and many firms returned to offering "more typical" annual wage increases. After easing throughout 2023, nonlabor cost and price pressures changed little in recent weeks; however, there was some indication of upward price pressure in certain industries.

Labor Markets

On balance, contacts reported that employment was flat to slightly down during the recent reporting period. Many firms across industries said they were maintaining headcount or hiring only to replace departing workers or underperforming staff. Some firms reduced staff to "right size" in the face of lower demand, while others restructured by replacing select roles with automation or rotating staff among multiple locations. Contacts generally expected little change in employment in the coming months.

Wage pressures were largely unchanged in recent weeks and many firms returned to offering more typical annual increases than in the past few years. For example, one manufacturer said employees would receive an average three percent adjustment this year compared to four percent to six percent increases in the previous year. Some retail firms opted not to increase wages but offered year-end bonuses or increased paid time off. While broad wage pressures eased over the past year, they remained elevated for select workers with specialized skills such as lawyers, accountants, and auto repair technicians.


Nonlabor cost pressures were relatively unchanged in recent weeks after easing through much of 2023. Some restauranteurs reported that food costs had flattened out, and many manufacturing and construction contacts suggested that input costs were "leveling off." One construction contact noted that "Final pricing for several projects came in about 10 percent less than budget." However, several manufacturers said that a recent uptick in steel prices was likely to raise costs for some inputs as contracts renew at the start of the year. Still, many firms across industries reported continued cost increases for health and property and casualty insurance.

Price pressures changed little from those of the prior period after easing through the second half of 2023; however, there were some signs of upward price pressures in certain industries. Many retailers reported holding prices steady. Several auto dealers noted offering "significant discounts" after a long period of not doing so when inventories were severely constrained. Most manufacturers reported no change to their selling prices, though some were increasing prices to cover higher costs. Some business services firms said they will be raising rates in 2024 after a period of holding back, with one saying, "[We] held rates at 2019 levels through 2023."

Consumer Spending

Consumer spending increased slightly following a decrease during the prior reporting period. Multiple general merchandisers and one apparel retailer cited strong sales centered on discounted items, while restauranteurs and food retailers reported mostly steady sales through the holiday season. By contrast, auto dealers continued to report slow sales because of high interest rates and high vehicle prices. One large general merchandiser said that lower-income households had become more reliant on credit cards and "buy now, pay later" payment options in recent months and was skeptical that these customers could sustain their current level of spending once seasonal promotions ended. On balance, contacts expected consumer spending to soften somewhat in the coming months.


Demand for manufactured goods increased from that of the prior reporting period, supported by the end of the UAW strike and ongoing federally funded projects. Contacts generally reported healthy order backlogs, and one manufacturer of machined parts said that their firm's 2024 backlog had increased by 30 percent since early November, leading to the highest single-year backlog in the firm's history. Reports from steel manufacturers were mostly positive, and one primary steel producer outlined growing confidence about general economic conditions among their firm's customers. On balance, manufacturers expected demand and orders to increase modestly in the near term.

Real Estate and Construction

Residential construction and real estate contacts reported that activity remained soft in recent weeks. However, one homebuilder reported an increase in inquiries as mortgage rates declined. Existing-home inventories remained low and below prepandemic levels, a circumstance which continued to constrain sales. Looking ahead, contacts anticipated activity would increase because they expected mortgage rates to fall further. One real estate agent expected "buyers who left the market [when rates peaked] to reenter the market."

Nonresidential construction rebounded in recent weeks. One commercial builder noted that declining interest rates and greater optimism about the economic outlook had boosted demand. Moreover, multiple general contractors reported that customers had elected to move forward with previously delayed projects. Commercial real estate and construction contacts expected demand to remain mostly stable in the near term.

Financial Services

Reports from bankers were mixed but were generally less downbeat than during recent reporting periods. While most lenders reported that consumer and commercial loan demand declined in recent weeks because of still-high interest rates, a few noted that loan activity had stabilized or even increased. Looking ahead, bankers anticipated that loan demand would stabilize if interest rates remained steady or declined. One banker said, "we're [not] building pipelines like we were before. Doesn't seem that strong, [but] doesn't seem that weak." Core deposits were flat, and a few bankers noted that clients continued to move funds into interest-bearing accounts. On balance, bankers reported that delinquency rates remained low.

Nonfinancial Services

Overall, freight activity declined again in recent weeks. However, one transportation contact indicated that year-over-year comparables had recently turned positive, and multiple haulers anticipated freight activity would stabilize in the coming months. Professional and business services contacts reported steady demand as economic activity remained resilient. One contact mentioned that an expected "pullback in discretionary marketing expenses for 2024" had not yet materialized. Another added that "interest rate stability and hopes for a soft landing" bolstered demand for the firm's services. Looking ahead, professional and business services contacts expected activity to increase in the coming months.

Community Conditions

Nonprofit childcare providers reported that funding had decreased even as demand for childcare services had increased during the past six months. Pandemic-era funding, such as that from the Child Care Stabilization Grant program that ended in September 2023, had primarily been used to pay staff salaries or bonuses. With the loss of government funding, one Cleveland-area provider said, "We are forced to increase costs for private-pay families as the funds available are not sufficient to provide a living wage to our staff. It has also put a lot of pressure on us to privately fundraise to fill the gap."

For more information about District economic conditions visit: https://www.clevelandfed.org/en/region/regional-analysis.

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Last Update: January 17, 2024