Fed Says Economic Growth Modest to Moderate, Supply Constrained
(Bloomberg) -- The U.S. economy expanded at a “modest to moderate rate” while some districts noted growth slowed citing supply constraints and concerns over the delta variant, the Federal Reserve said.
Price increases were driven by supply shortages, transportation bottlenecks and labor constraints, the U.S. central bank said in its Beige Book survey released Wednesday.
As a result, “most Districts reported significantly elevated prices,” the Fed said. “Many firms raised selling prices indicating a greater ability to pass along cost increases to customers amid strong demand.”
U.S. central bankers are assessing the economic fallout from a spike in Covid-19 infections blamed on the delta variant, while pandemic-induced supply disruptions continue to lift prices.
The report was based on anecdotal information collected by the Fed’s 12 regional banks through Oct. 8 and compiled by the Richmond Fed.
Inflation is running well above the Fed’s 2% goal. In fact, the price gauge the central bank uses for its official target is up 4.3% from a year earlier, its largest annual gain in three decades. Hiring, meanwhile, fell well short of forecasts in September with nonfarm payrolls growing just 194,000.
Not only are firms struggling to attract workers, they’re having difficulty retaining the ones they already have. Employer and government vaccine mandates are also having an impact.
“Firms reported high turnover, as workers left for other jobs or retired,” the Fed said. “Child-care issues and vaccine mandates were widely cited as contributing to the problem.”
Select Regional Bank Comments
“Retailers and manufacturers posted moderate to steep price increases amid ongoing supply disruptions. The outlook was cautiously optimistic.” - Boston
“Employment and wages increased. Businesses reported ongoing widespread escalation in both input costs and selling prices.” - New York
“Fear and uncertainty of the Delta variant continued to constrain growth, but contacts were most worried by ongoing labor shortages and supply chain disruptions.” - Philadelphia
“While demand was still solid, supply chain disruptions tempered the pace of sales and output growth. The expiration of supplemental unemployment insurance benefits and a return to school did little to alleviate worker shortages, and wages continued to rise.” - Cleveland
“Employers across sectors had difficulties finding and keeping workers, which led to offering higher wages and bonuses to recruit and retain staff.” - Richmond
“Ongoing growth in manufacturing alongside renewed growth in the energy sector supported the regional economy.” - Kansas City
“The District economy expanded at a solid rate, with broad-based growth across sectors. Covid-19 and labor and supply-chain constraints remained headwinds.” - Dallas
Fed officials, wary of inflation, are nonetheless getting ready to start winding down the asset purchase program they launched last year to help shelter the economy as the pandemic spread.
The U.S. central bank is currently buying $120 billion in Treasuries and mortgage-backed securities a month. Officials broadly agreed to start tapering those purchases in either mid-November or mid-December, according to minutes of their last meeting on Sept. 21-22.
Projections published at the conclusion of that gathering also showed the committee was evenly split on whether increases in its benchmark interest rate, which is currently near zero, would be necessary next year.
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