Federal Reserve Bank of Chicago
Summary of Economic Activity
Economic activity in the Seventh District increased modestly in late May and June, and contacts expected a slight increase in activity in the coming year. Manufacturing demand rose moderately; employment rose modestly; consumer spending, business spending, and construction and real estate activity increased slightly; and nonbusiness contacts saw a small increase in economic activity. Prices rose moderately, wages were up modestly, and financial conditions tightened slightly. Farm income expectations for 2026 edged down.
Labor Markets
Employment rose modestly over the reporting period, and contacts expected a similar pace of hiring over the next 12 months. Overall, contacts characterized the labor market as stable. Across industries, including manufacturing, several contacts reported that they were planning to hire at rates similar to prior reporting periods. Some noted continued difficulty finding skilled workers, including a contact in banking who saw fewer applicants for open positions than a year ago. In contrast, there were a few contacts who reported cooler labor market conditions: A heavy machinery manufacturer said they were not having trouble hiring in part due to layoffs at other nearby firms, and a chemicals manufacturer indicated that they were downsizing. Wages grew modestly and benefits costs were up moderately.
Prices
Prices rose moderately overall in late May and June, and contacts expected prices to continue to rise moderately over the next 12 months. Producer prices rose moderately. Nonlabor input costs increased moderately on balance, and contacts tied many of these increases to the conflict in the Middle East, including for energy, shipping, and raw materials like chemicals and plastics. Consumer prices were up moderately. One retail industry analyst expected price growth pressures to ease over the rest of the year if energy prices and tariffs remain at or below current levels.
Consumer Spending
Consumer spending increased slightly during the reporting period. Several contacts noted that high energy prices were affecting buying decisions, with one contact seeing lower saving rates. Nonauto retail sales edged up. Contacts indicated that more generous retail promotions were boosting activity, in part due to the scheduling of Amazon Prime Days and competing discounts in June instead of July. Sales of consumer electronics rose, while spending on furniture decreased. Leisure and hospitality spending increased slightly. Dining at restaurants remained strong, but hotel stays declined. A contact at a large convention center reported decreased demand for social events. Light vehicle sales increased, nearly matching last year's level. Demand for hybrids was particularly strong across the District. Contacts reported rising prices for used vehicles due to increased demand and low inventories. Service and parts activity was strong, though some dealers said that customers were putting off some routine maintenance, like oil changes.
Business Spending
Business spending rose slightly on balance in late May and June. Capital expenditures ticked up, and expectations for spending over the coming year also increased. Contacts reported spending on new buildings, equipment, and software. Contacts that sell capital goods indicated that some clients were hesitant to move forward with orders due to uncertainty attributed to the conflict in the Middle East. Demand for truck transportation increased slightly and rates increased amidst elevated fuel prices. A consultant for the trucking industry anticipated tight supply in the sector due to increasingly strict driver qualifications. Retail inventories were comfortable, stocks of new and used vehicles were low, and manufacturing inventories were a little high. Some contacts reported shortages of inputs, notably for electrical components.
Construction and Real Estate
Construction and real estate demand increased slightly overall over the reporting period. Residential construction activity edged down. Surveys of contractors and homebuilders indicated that quoting activity worsened, backlogs were weaker than normal, and May activity was slower than expected. Contacts reported that a growing share of renovation projects were for necessary repairs rather than additions. Residential real estate activity rose moderately, though one contact said that the increase was largely just making up for slower-than-usual activity earlier this year. Prices and rents were up slightly. Nonresidential construction activity was unchanged. Activity remained robust in the data center and electricity generation segments, while new construction in other segments was idiosyncratic. Commercial real estate activity was unchanged overall. Prices were up slightly while rents were unchanged.
Manufacturing
Manufacturing demand increased moderately in late May and June. Chemicals, plastics, and rubber production increased slightly. Primary metals wholesalers and manufacturers reported a slight increase in demand, driven by sales to the defense sector and data center builders. Auto industry demand was flat on balance, with one contact noting that supply problems for aluminum and certain components had held back production some. Heavy truck production increased slightly. The defense sector spurred a modest increase in fabricated metals production, enough to offset decreased demand from the auto industry. Machinery sales increased strongly across a variety of sectors, including to defense and data center builders.
Banking and Finance
Financial conditions tightened slightly over the reporting period. Bond values increased a bit, and both equity values and volatility remained flat overall. Business loan demand rose modestly over the reporting period, with a few contacts noting greater volumes for small businesses. In contrast, several contacts saw slower demand for multifamily development loans. Business loan quality was flat, rates increased slightly, and terms were unchanged overall. In the consumer sector, loan demand and quality were flat on net. Rates rose slightly, and terms were flat.
Agriculture
Expectations for 2026 District farm income deteriorated some in late May and June as crop prices faltered and most livestock prices were flat. Corn, soybean and wheat prices all declined. Egg and hog prices were flat overall, while cattle prices decreased some from elevated levels. Dairy prices were down on balance. Contacts noted that cheese production increased, in part because of rising demand for whey protein, a cheese biproduct. Corn and soybean crops were progressing well across most of the District. Production of new farm equipment slowed, spurring sales of used equipment and helping to reduce elevated used inventories. Contacts reported that farm equipment repair activity was much higher this year as a consequence of aging equipment fleets. Prices for fertilizer and fuel purchases dropped as transportation blockages eased in the Middle East, although it is not a major season for farm purchases of these items.
Community Conditions
Community, nonprofit, government, and other nonbusiness contacts reported slightly improving labor demand reflecting a small increase in economic activity. Furthermore, contacts in state government saw growth in revenue from income tax withholding. However, persistent uncertainty continued to be a drag on low- and moderate-income consumers and the organizations that serve them. Small business intermediary contacts reported that increased shipping costs were affecting the stability of very small businesses, even those that have been in business for several years. Social service providers said they had decreased their reliance on the federal government as funding levels and rules have changed. Instead, they have continued to turn to other strategies to meet community needs. Community contacts noted that low wage workers, many of whom cannot work from home, have been adversely affected by higher gas prices, making commuting more costly.
For more information about District economic conditions visit: https://chicagofed.org/cfsec.