QC economy slows, but local businesses expect improvement ahead

The Quad Cities economy slowed in the fourth quarter of 2023 as local manufacturers experienced a decrease in business activities late in the year. But some local chamber members expect economic conditions to improve in the next six months. Those findings are among the projections, forecasts and conclusions shared by the Quad Cities Chamber’s Director […]

The Quad Cities economy slowed in the fourth quarter of 2023 as local manufacturers experienced a decrease in business activities late in the year. But some local chamber members expect economic conditions to improve in the next six months.

Those findings are among the projections, forecasts and conclusions shared by the Quad Cities Chamber’s Director of Business Intelligence Bill Polley in the business development organization’s recently released 2023 Q4 Market Report.  The current report is available on the chamber’s website and includes these categories:

• Regional Market Summary.
• Labor Market Update.
• Business Outlook Survey.
• Chamber Project Update.

The document identifies trends and data for companies doing business within the region, the regional chamber of commerce said. Nationally, tight monetary policy “designed to fight inflation is acting as a headwind against the economy and beginning to slow down the pace of growth,” Mr. Polley noted. “The economy is expected to slow further in 2024; however, more analysts are expecting a ‘soft landing’ rather than a recession.”

Fed cuts likely

For now, Mr. Polley wrote, “Everyone is watching and waiting for the interest rate cuts to begin, but it is not likely to be in the current quarter. Expect rate cuts between May and July. For interest-sensitive sectors such as manufacturing, the rate cuts will be a welcome relief.” That manufacturing sector is seeing declines across the nation and areas such as the manufacturing-rich Quad Cities are experiencing the slowdown ahead of the U.S. economy, he noted. For his report, Mr. Polley also analyzed data from the chamber’s Business Outlook Survey launched in the third quarter of 2023. It asks local businesses to gauge the state of the QC economy in economic activity, wages, hiring, capital expenditures and other indicators. Q4 Market responses “are a representative mix of companies from the region with 20% manufacturing, 25% retail, 45% service providers and 9% other,” the report said. “Our Business Outlook Survey shows that local manufacturers have experienced a decrease in the level of business activity in the fourth quarter compared to the third quarter,” Mr. Polley added.  Compared to other respondents, manufacturers also reported a less optimistic view of both the U.S. economy and their own businesses' economic activity in the fourth quarter. “There was near universal sentiment that prices and wages increased last quarter. Half of the respondents reported increased capital spending,” Mr. Polley wrote. 

Locals more optimistic

“Looking ahead to the next six months,” he added, “manufacturers have better expectations for their own company than for the U.S. economy as a whole.” And overall, too, the survey’s respondents expect conditions to improve over the next six months. That includes among non-manufacturers in the Quad Cities who had “a generally positive view of current economic conditions and most expect conditions to remain the same or improve over the next six months,” Mr. Polley wrote. Inflation remains a concern to local businesses worried about continuing wage pressure, Mr. Polley writes, although nationwide there has been some easing of wage pressure. Inflation expectations also are trending downward. The personal consumption expenditure inflation rate is now at 2.6%, down from 3.4% at the end of the third quarter, the report said. Nationwide real gross domestic product (GDP) in the U.S. grew at a 3.3% rate in the fourth quarter of 2023, down from the previous quarter’s 4.9% growth, but still above average.

Inflation still a concern

Mr. Polley warned, however, “At the same time, other sectors of the economy are still seeing strong enough growth that rate cuts could reignite inflation. This is a critical moment for the Fed as it threads the needle between getting inflation back to its target without hurting the labor market.” Until the Federal Reserve begins cutting the policy interest rate sometime between May and July, interest-sensitive industries will remain under pressure, Mr. Polley noted. In addition, a decline in inflation is expected to cause credit conditions to tighten further, he said, so economic performance is likely to be mixed across the various sectors.  Job growth also could slow down compared to the rapid pace of 2023. According to U.S. Bureau of Labor Statistics numbers, the Quad Cities labor market added about 1,000 jobs from December 2022 to December 2023. The region ended the fourth quarter with total nonfarm employment at 185,300 jobs. As of the end of the fourth quarter, the unemployment rate stood at 3.9% in the Quad Cities Metropolitan Statistical Area (MSA), down from 5% at the end of the third quarter. In the chamber's six-county service area, the unemployment rate ranged from 2.7% in eastern Iowa’s Muscatine County to 4.7% in Rock Island and Henry counties in western Illinois. Leisure and hospitality as well as government were the main drivers of local employment growth in 2023, according to the chamber report.

Chamber is busy

The last quarter of 2023 also was a busy one for chamber staff which worked on 23 business attraction and/or expansion projects. That was up significantly from 13 contacts during the same period the previous year. In the last quarter, staff also received 19 requests for information and eight were completed. The chamber also conducted six site visits.