Skip to main content

Chicago: October 2021

‹ Back to Archive Search

Beige Book Report: Chicago

October 20, 2021

Summary of Economic Activity
Economic activity in the Seventh District increased modestly in late August and September, and contacts expected growth to continue at that pace in the coming months. Labor and materials supply constraints as well as the spread of COVID-19 continued to weigh on the expansion. Employment, manufacturing, and business spending grew moderately, but consumer spending and construction and real estate were little changed. Wages and prices increased strongly while financial conditions were flat. District corn and soybean harvests were larger than expected and near record levels.

Employment and Wages
Employment increased moderately over the reporting period, and contacts expected a similar pace of growth over the next 12 months. Contacts across sectors reported continued difficulty in finding workers at all skill levels, though a few contacts noted an uptick in the number of job applicants. Some businesses, particularly in the restaurant and manufacturing sectors, continued to limit operating hours because of a lack of workers. Contacts pointed to childcare challenges, retirements, COVID-19 health safety concerns, and vaccination requirements as factors limiting labor supply. Many contacts indicated that they were delaying the return to in-person work because of high numbers of COVID-19 cases. In addition, absences due to COVID-19 exposure were higher than a few months ago. Overall, wage and benefit costs increased strongly. A scarcity of applicants for open positions led numerous contacts to raise wage offers, and many reported giving additional pay raises on top of regular annual increases to retain their existing workforce. Some contacts said they did not hire applicants because asking wages were higher than their business models could support. There were reports of workers shifting sectors to pursue higher compensation and preferred working conditions.

Overall, prices rose strongly in late August and September, though contacts expected increases to slow to a moderate pace over the next 12 months. There were large increases in producer prices, driven by passthrough of higher materials, energy, labor, and transportation costs. A few contacts noted that they were changing prices more frequently than usual. Consumer prices moved up robustly overall. Contacts pointed to solid demand, limited inventories, increased costs, and a greater ability to pass cost increases on to customers as sources of the higher consumer prices.

Consumer Spending
Consumer spending was little changed over the reporting period, but remained at a high level. Spending on leisure and hospitality declined, especially at hotels and restaurants. In contrast, nonauto retail sales increased moderately. Contacts indicated that demand for furniture and home furnishings, appliances, and electronics remained robust. Spending for home improvement and groceries was flat but continued at high levels. Light vehicle sales decreased somewhat, as declines in new vehicles outweighed a rebound in used vehicle sales. Auto dealer profit margins remained high but dropped further from their summer peak. Contacts reported that ordering vehicles according to customers' preferences was likely to become standard practice, allowing for lower dealer inventories. Auto service and parts sales were reported to be up moderately.

Business Spending
Business spending increased moderately in late August and September. Retail inventories remained at low levels in numerous sectors due to supply chain bottlenecks, and contacts expected the issues to continue into the second half of 2022. New and used light vehicle inventories were incredibly low, as auto production remained hampered by supply constraints. In manufacturing, for-sale inventories were very low, and there were shortages of a wide range of inputs including certain metals, plastics, and microchips. Demand for transportation services remained elevated, with many contacts reporting continued domestic and international shipping delays. Capital expenditures increased moderately, and contacts expected a similar pace of expansion over the next twelve months. Commercial and industrial energy consumption was flat but remained higher than pre-pandemic levels.

Construction and Real Estate
Construction and real estate activity was similar to that of the prior reporting period. Residential construction was unchanged, as shortages of materials and labor continued to slow projects. Residential real estate activity was also little changed. Home sales were flat, while prices increased moderately. One contact pointed to rising inventories as a source of cooling price growth. Rents were up modestly, and contacts noted that signing bonuses were now lower than before the pandemic. Nonresidential construction activity increased slightly. Growth was concentrated in the industrial segment, with contacts highlighting strong demand for facilities to house inventory close to company operations and customers. In contrast, office construction was reportedly weaker. Commercial real estate activity was unchanged. Leasing and sales of industrial and multi-family properties remained steady at high levels. Meanwhile, leasing and sales activity within the office segment remained substantially below pre-pandemic levels. That said, office property showings increased in recent weeks, and some offices moved to new spaces to avoid the costs of reconfiguring to accommodate COVID-19 protocols.

Manufacturing production grew moderately in late August and September, and contacts reported growing order backlogs. The majority of manufacturing contacts indicated that business was at or above pre-pandemic levels, with most running at full capacity subject to ongoing labor and logistical challenges. Auto output remained flat at low levels as shortages of microchips and other materials limited production, leading to some order cancelations for auto parts suppliers. Demand for heavy machinery grew moderately, led by higher sales in the agriculture and construction industries. Heavy truck demand was strong, particularly for used trucks. Contacts reported higher steel demand from most industries, particularly for specialty products. Steel service center inventories increased, but were expected to stay below pre-pandemic levels over the long term. Building materials demand remained solid, supported by homebuilding and remodeling projects.

Banking and Finance
Financial conditions were flat on balance over the reporting period. Participants in equity and bond markets reported little net change in conditions. Business loan demand was also about the same, with contacts reporting continued strong demand for M&A loans. Business loan quality was unchanged overall, though standards loosened somewhat. In consumer markets, there was a mild increase in loan demand. Contacts noted that residential mortgage activity continued to be strong. With all-time low delinquency rates in the housing, auto, and credit card markets, both loan quality and standards were unchanged.

In spite of drought in some areas, corn and soybean harvests in the District were larger than expected and near record levels. More plentiful supplies of both crops were putting downward pressure on prices. That said, corn and soybean prices were higher than a year ago. Cattle prices were flat, while milk prices recovered some. Facing higher feed costs, dairy farm margins tightened. Rising energy prices and logistical problems were creating concerns about the cost and availability for 2022. Farmland prices and rents continued to grow. Cash from government programs and product sales were holding back demand for agricultural lending.

For more information about District economic conditions visit: