Labor Markets

Employment increased slightly over the reporting period and contacts expected growth to continue at that pace over the next 12 months. The labor market remained in good shape overall, though there was some variation in contacts’ assessments of the hiring environment and there were increasing reports of a loosening in conditions. Several contacts were struggling to fill positions, including for machinists and technicians. In addition, contacts in agriculture expressed concerns about potential labor shortages for livestock, meatpacking, and fruit and vegetable operations given efforts to more strictly enforce immigration laws. In contrast, there were many contacts that reported having little trouble filling positions. One contact in retail said they had “resumes stacked to the ceiling.” A staffing firm again reported lower hiring by manufacturers, particularly from the auto industry. In addition, contacts at some machinery and food manufacturing firms reported layoffs, and other manufacturing contacts noted that they were able to hire more easily after recent layoffs at nearby factories. A few contacts were hesitant to hire because of uncertainty about how federal government policy changes could affect the economy. Wages and benefits costs were up moderately overall, with contacts attributing increases to annual cost-of-living adjustments and health care plan renewals.

Prices

Prices rose modestly overall in January and early February and contacts expected a similar rate of increase over the next 12 months. Producer prices moved up slightly. Nonlabor input costs increased, with reports of higher prices for raw materials, energy, and shipping. Contacts also noted increased costs for insurance. Consumer prices again rose modestly overall. One retail industry analyst said they expect consumer prices to reflect any increases in tariffs on consumer goods about three to six months after implementation.

Consumer Spending

Consumer spending was flat over the reporting period, though contacts noted more week-to-week volatility than usual. Nonauto retail sales increased slightly. Sales were up for bulk items at warehouse stores, for luxury items, and at fitness centers. Spending on household durable goods softened, however, and a furniture retailer noted lower take-up of promotional offerings. Leisure and hospitality spending increased, led by restaurants, though the pace of growth slowed some in February. While light vehicle sales were down modestly, the result was better than expected given stormy and frigid weather across the District.

Business Spending

Business spending was flat in January and early February. Capital expenditures fell slightly, though expectations for spending over the coming year were up. Demand for truck transportation edged up and freight rates increased a bit. Retail inventories decreased slightly from somewhat low levels. Stocks of both new and used vehicles were low, in part because of strong demand at the end of 2024. Manufacturing inventories were slightly elevated. Reports of materials shortages remained scarce, though one contact said castings from foundries were difficult to get.

Construction and Real Estate

Construction and real estate activity declined slightly over the reporting period. Residential construction was flat overall, with contacts highlighting declines in the Chicagoland market and a slowdown in growth in the Indianapolis metro area. Residential real estate contacts noted a modest decline in sales and a slight increase in home prices. Rental occupancy was up, and rents continued to grow, but at a slower pace. Nonresidential construction was unchanged, though some contacts reported strong interest in site studies for industrial projects. High costs for labor and materials continued to pose challenges to builders. In the commercial real estate sector, activity was up, selling prices decreased slightly, and rents and vacancy rates rose slightly.

Manufacturing

Manufacturing demand declined slightly overall in January and early February. Steel orders were flat, as higher sales to oil and gas customers were offset by lower sales to the construction and automotive sectors. Fabricated metals demand declined slightly, in part due to fewer orders from the automotive and agricultural industries. Machinery sales edged down, with contacts also reporting declines in demand from the automotive industry. Auto production decreased slightly, while heavy truck production was up slightly. Many manufacturing contacts said that higher tariffs had the potential to raise costs and disrupt supply chains.

Banking and Finance

Financial conditions were little changed in January and early February. Bond and equity values rose slightly, while volatility remained flat on net. Business loan demand increased modestly, though a banking contact noted activity was lower than usual for this time of year, particularly for acquisition financing. Business loan quality decreased slightly overall, with one contact noting a deterioration in asset quality for auto suppliers, who were facing lower sales and tighter profit margins. Business loan rates rose modestly and terms remained flat across the board. Consumer loan demand decreased slightly, though one contact highlighted an increase in demand for HELOC loans. Consumer loan quality, rates, and terms were steady.

Agriculture

Farm income for District crop producers in 2025 was expected to be similar to 2024, though livestock producers could fare better. Contacts noted higher-than-normal uncertainty given potential for federal policy shifts, especially regarding trade. Corn, soybean, and wheat prices increased during the reporting period, leading many farmers to sell stored crops at higher prices than were available during harvest. Major shipping challenges that farmers confronted in late 2024 were largely resolved, though there were still some train delays to Mexico. While input costs were stable for most products, prices for some fertilizers rose. Contacts noted an acceleration in the use of precision farming technologies, which can lower input costs and improve yields. Cattle, hog, and cheese prices rose, while milk prices declined. Egg prices hit record levels as avian influenza continued to reduce the number of laying hens. Contacts reported signs of greater financial stress among farm borrowers as delinquencies edged up but said that most problems could be resolved with modest loan restructuring. Financing for farm operations was seen as readily available.

Community Conditions

Community, nonprofit, and other nonbusiness contacts reported no change in economic conditions over the reporting period, though many expressed elevated uncertainty about the economic outlook related to recent and potential federal policy changes. State government officials said withholding revenues on personal income taxes were consistent with a stable labor market, while other tax revenues were mixed. Community contacts reported strong concern about the impact of the evolving federal policy landscape on social service organizations, as most lack the capacity to absorb any disruption in funding while maintaining services. Nonprofit and other community organizations stressed that demand for housing, childcare, healthcare, food, and other necessities remains high as families navigate persistently elevated grocery and housing prices.