Skip to main content

Chicago: January 2020

‹ Back to Archive Search

Beige Book Report: Chicago

January 15, 2020

Summary of Economic Activity
Economic activity in the Seventh District increased modestly overall in late November and December, and contacts expected growth to continue at a similar pace over the next 12 months. Consumer spending increased modestly, while business spending and construction and real estate activity increased slightly. Manufacturing and employment were little changed. Wages and prices rose slightly and financial conditions improved modestly. The prospects of a trade deal with China boosted farmers' outlooks.

Employment and Wages
Employment was little changed over the reporting period, though contacts expected a modest rate of growth over the next 12 months. Current hiring remained focused on professional and technical, sales, and managerial workers. As they have for some time, contacts indicated that the labor market was tight and that it was difficult to fill positions at all skill levels. Manufacturers facing slow demand again reported cutting hours rather than laying off workers because they were worried the tight labor market would make it too difficult to hire when demand recovered. A staffing firm reported a moderate increase in billable hours. Wages increased slightly. Contacts were most likely to report increases for administrative, professional and technical, and managerial workers. Multiple contacts reported greater wage pressures for entry-level workers. Benefit costs increased modestly.

Prices increased slightly in late November and December, and contacts expected modest increases over the next 12 months. Retail prices increased slightly overall. One contact noted a small pickup in grocery price inflation. In addition, the contact reported that retailers were passing a greater share of freight- and tariff-related costs onto customers. Producer prices edged up, with contacts generally reporting small growth in input costs.

Consumer Spending
Consumer spending increased modestly over the reporting period. Nonauto retail sales were up modestly, with gains reported in the electronics, entertainment, furniture, and jewelry sectors. Overall, holiday sales met retailers' expectations. Contacts again reported strong growth in e-commerce and slow growth for brick and mortar general merchandise stores. New and used light vehicle sales increased moderately. Contacts continued to report shortages of GM replacement parts following the UAW strike.

Business Spending
Business spending increased slightly in late November and December. Retail inventories were generally comfortable, though GM dealers reported that restocking following the end of the UAW strike was proceeding slower than expected. Most manufacturers indicated that inventories were at comfortable levels and fewer contacts noted higher-than-desired levels. One heavy machinery dealer reported elevated inventory due to slower sales. Capital spending increased slightly and contacts expected a modest increase in spending over the next 12 months. Current outlays were primarily for IT equipment and intellectual property. Three-quarters of contacts reported that their newly purchased capital was intended to increase capacity. Demand for transportation services declined slightly. Energy usage edged down, largely due to lower demand from the industrial sector.

Construction and Real Estate
Overall, construction and real estate activity increased slightly over the reporting period. Residential construction contacts reported a small increase in building. Residential real estate activity was unchanged, as growing demand for starter homes was offset by declining demand for high-end homes. Home prices and rents increased slightly. Nonresidential construction activity was little changed, and contacts again noted that rising costs were holding back growth. Commercial real estate activity increased slightly on top of a strong level. Contacts highlighted growth in the flex-office and industrial sectors but continued to report difficulties for big box and mall retailers. Rents ticked higher, vacancy rates inched lower, and the availability of sublease space increased marginally.

Manufacturing production was flat in late November and December. Steel demand increased slightly, supported by increased demand from the auto sector following the end of the GM strike. Auto production was little changed overall, but continued at a solid level. GM suppliers reported that orders returned in line with expectations after the strike ended. Demand for heavy trucks decreased, and contacts expected continued declines over the next year. Heavy machinery manufacturers reported modest increases in sales. Demand for specialty metals was flat overall, with increased orders from the aerospace, defense, and energy sectors offset by decreased orders from the agriculture and heavy trucks sectors. Manufacturers of building materials reported little change in sales.

Banking and Finance
Financial conditions improved modestly over the reporting period. Participants in the equity and bond markets reported moderately better conditions, citing lower interest rates, "stabilization" of the yield curve, and progress in trade talks between the US and China as positive developments. Business loan demand decreased slightly overall, with contacts reporting a slowdown in commercial real estate activity. Loan quality deteriorated slightly, but standards were little changed. Consumer loan demand increased modestly, led by continued growth in mortgage refinancing; loan quality and standards were little changed.

The prospects of a trade deal with China created some optimism in the farm sector. One contact called the potential deal a "key market driver." The final results for the 2019 harvest varied from average to well below normal across the District, yet they were better than had been expected in light of poor weather during both planting and harvesting. Corn and soybean prices moved higher, with both prices above year-ago levels. That said, lower-than-usual corn quality and higher-than-usual drying costs cut into crop farmers' profits. Overall, with extra government payments boosting farm income, the District's agricultural sector was in about the same financial shape as it was a year ago. Increases in milk and cattle prices provided a boost to dairy and livestock producers.

For more information about District economic conditions visit: