Fed Says Growth Downshifted Slightly July-Aug, Cites Delta
(Bloomberg) -- U.S. economic growth downshifted slightly to a moderate pace in early July through August, the Federal Reserve said.
“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant,” the U.S. central bank said in its Beige Book survey released Wednesday.
The report was based on anecdotal information collected by the Fed’s 12 regional banks through Aug. 30 and compiled by the Federal Reserve Bank of New York.
“Looking ahead, businesses in most Districts remained optimistic about near-term prospects, though there continued to be widespread concern about ongoing supply disruptions and resource shortages,” the Fed said.
However, a majority of regional Feds said that the spread of the delta variant had led to a pullback in economic activity in their districts.
Fed officials are monitoring the economic recovery amid the spread of the highly contagious delta variant as they weigh when to start scaling back their $120 billion in monthly asset purchases. Chair Jerome Powell, in an Aug. 27 speech to the central bank’s annual Jackson Hole policy forum, said that the tapering process could begin later this year if the economy stays on track. The policy-setting Federal Open Market Committee next meets Sept. 21-22.
The FOMC has committed to reducing the monthly pace of bond buying after there’s “substantial further progress” on inflation and employment. Several Fed officials, including St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan, have urged the committee to move ahead with planning to withdraw stimulus.
New York Fed President John Williams, speaking earlier on Wednesday, said “it could be appropriate” for the U.S. central bank to begin tapering its bond-buying program before the year is out, but he wants to see more improvement toward maximum employment.
Regional Bank Comments
“In New York City, rising concerns about the delta variant and the extension of federal restrictions on foreign visitors have constrained activity and led to the cancellation of summer events.” - New York Fed
“Firms expected demand would remain strong in the near term, but they were less optimistic that labor and supply challenges would abate enough to ease the upward pressure on wages and costs.” - Cleveland Fed
“Prices continued to rise, albeit at a slightly slower pace in July and August than in June. Rising input prices continued to outpace selling price growth, compressing margins.” - Dallas Fed
“Real estate contacts noted that buyers have become more reluctant to buy as home prices continued to reach peak levels and housing affordability declined in most markets throughout the District.” - Atlanta Fed
“Overall inflation pressures remain elevated, but firms reported varying degrees of pass-through to customers.”- St. Louis Fed
Attracting and retaining employees has been a massive challenge for businesses ranging from restaurants and retailers to manufacturers and builders.
“Demand for workers continued to strengthen, but all Districts noted extensive labor shortages that were constraining employment and, in many cases, impeding business activity,” the Fed said.
The U.S. economy gained 235,000 jobs last month, the smallest increase in seven months, after an upwardly revised 1.05 million advance in July, a Labor Department report showed Friday. Employment in leisure and hospitality, which has posted strong improvements recently, was flat amid the spreading delta variant and persistent hiring challenges.
Mean time, job openings posted a new record in July at more than 10 million, pointing to the mismatch between labor supply and demand.
Powell, in his Jackson Hole speech, emphasized that rising prices were mostly driven by temporary factors, such as supply disruptions related to reopening the economy during the pandemic. While said that the labor market had made “clear progress,” the tone of his remarks suggested he was in no hurry to move, even before Friday’s jobs report.
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