The Chicago Federal Reserve's latest report predicts the weakest outlook since the start of the pandemic in March 2020.
The latest forecast from the Chicago Fed indicates that business conditions have declined and expectations for economic growth for the next six to 12 months are weak.
Only 17% of respondents said they expected economic activity in 2023 to grow, according to the Chicago Fed Survey of Economic Conditions Activity Index.
The index fell to -34 in June from -8 in May, "suggesting that economic growth was well below trend," the Chicago Fed said in a tweet.
Businesses with operations in Illinois, Iowa, Indiana, Michigan, and Wisconsin participate in providing responses to the index. And were sharply pessimistic.
Labor Costs, Employee Hiring Outlook Pessimistic
The outlook for labor costs, employee hiring and capital spending all declined.
Companies reported that the current pace of hiring declined along with the expectations for the rate of hiring over the next 12 months.
The hiring index fell into negative territory and the hiring expectations index remained negative.
Expectations of capital spending for equipment, structures and intellectual property, an indicator of future growth, also declined for the next 12 months, pushing the capital-spending-expectations index into negative territory.
Labor costs have been a factor for employers in many industries. The labor-cost-pressures index increased and the nonlabor-cost-pressures index was unchanged. Both cost pressures indexes remained positive.
Inflation Remains High
The Federal Reserve has increased rates in 2022 in an attempt to stem the increase in inflation rates. Consumers face higher costs in food, gasoline and housing.
June's inflation data was white-hot, increasing the odds that the Fed could increase rates by 100 basis points, or 1 percentage point.
U.S. inflation rates climbed to a 41-year high of 9.1% last month while core prices increased by 5.9% from surges in gas prices, airfares and rental payments.
Cleveland Fed President Loretta Mester, appearing on Bloomberg TV, declined to say whether the Fed would push for a 100-basis-point hike at its next meeting.
The inflation report was "uniformly bad, there was no good news in that report at all," she said.
Gasoline Costs Plummet
Some costs have started to fall, especially in the housing market as mortgage rates pushed past 5%.
And the national average price of gasoline continues to decline. A month ago nearly half the states reported prices higher than $5 a gallon, but now only nine states are seeing that price.
The current decline in gas prices "could eventually surpass the 67-day decline in 2020 due to Covid-19," said Patrick De Haan, head of petroleum analysis at GasBuddy, in a tweet.
He predicts that gasoline prices could decline to $4 a gallon by Aug. 14 since gas prices have already fallen for 30 consecutive days.
"We're nearly 45c/gal lower than the peak price, Americans will spend $165 million LESS today on gasoline than a month ago," he tweeted.
