Fed Beige Book: Labor Shortages, Supply-Chain Issues Curb Growth

Written by David Schollaert

The U.S. economy expanded at a modest to moderate rate from late August to early October, said the Federal Reserve in its latest Beige Book report. Overall growth was curbed, though, due to supply chain disruptions, labor shortages and uncertainty around the surging Delta variant.


Consumers spent more dollars in travel and tourism activity once again, but some Fed districts reported declines that coincided with increased COVID cases and the start of the school year. Manufacturing grew moderately to robustly in most parts of the country, as did trucking and freight. Auto sales were the most impacted due to low inventory levels and rising prices.

Growth in nonmanufacturing activity ranged from slight to moderate for most Districts. Residential real estate activity was unchanged or slowed slightly but overall was healthy, while nonresidential real estate reports were varied across Fed districts and market segments.

Employment increased at a modest to moderate rate in recent weeks as demand for workers was high, but labor growth was dampened by a low supply of workers. Most Fed districts reported robust wage growth, pushing both starting and existing wages up to attract and keep talent. Other incentives were leveraged as well, such as signing and retention bonuses, flexible work schedules, or increased vacation time.

Elevated prices were a concern across Fed districts. Higher prices were fueled by rising demand for goods and raw materials, while rising input costs were widespread across industry sectors, driven by product scarcity resulting from supply-chain bottlenecks.

Prices of steel, electronic components and freight costs rose markedly this period. Higher selling prices were supported by strong demand, as cost increases were passed downstream.

Expectations for future price growth varied with some expecting prices to remain high or increase further while others expected prices to moderate over the next 12 months. Outlooks for near-term economic activity remained positive, overall, but some Fed districts noted increased uncertainty and more cautious optimism than in previous months.

District Highlights from October 2021 Beige Book:

Boston – Business activity in the First District expanded at a modest to moderate pace. Wages increased moderately as firms competed for scarce workers. Retailers and manufacturers posted moderate to steep price increases amid ongoing supply disruptions. The outlook was cautiously optimistic.

New York – Growth in the regional economy slowed to a modest pace in recent weeks, as supply disruptions and labor shortages have impeded economic activity. Employment and wages increased. Businesses reported ongoing widespread escalation in both input costs and selling prices. Despite the slowdown, contacts continued to express optimism about future business prospects.

Philadelphia – Business activity grew modestly during the current Beige Book period, slower than the prior period, but remained below pre-pandemic levels. Fear and uncertainty of the Delta variant continued to constrain growth, but contacts were most worried by ongoing labor shortages and supply chain disruptions. Overall, employment continued to grow modestly, while wages and prices continued to rise at a moderate pace.

Cleveland – Economic activity remained strong, while demand was still solid, and 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. This and higher nonlabor input costs put further upward pressure on selling prices.

Richmond – The regional economy increased at a modest rate as growth was constrained by labor shortages and delays receiving goods and raw materials. Employers across sectors had difficulties finding and keeping workers, which led to offering higher wages and bonuses to recruit and retain staff. Prices remained elevated compared to year-ago levels.

Atlanta – Economic activity expanded moderately as labor markets remained tight and wage pressures intensified. Some nonlabor costs stayed elevated. Retail sales increased. Leisure travel was strong, but hotel occupancy levels declined. Residential real estate demand remained robust. Commercial real estate conditions were stable. Manufacturing activity expanded. Banking conditions were steady.

Chicago – Economic activity increased modestly. Employment, manufacturing, and business spending grew moderately, but consumer spending and construction and real estate were little changed. Wages and prices increased strongly while financial conditions were flat. District corn and soybean harvests were larger than expected and near record levels.

St. Louis – Economic conditions continued to improve at a moderate pace. Labor shortages and supply chain issues continue to be cited as primary issues. Increased input costs have led to cost pressures across industries, and firms with the power to do so report passing on increased costs to consumers.

Minneapolis – District economic activity grew moderately since the previous report. Employment increased, though hiring demand continued to outstrip labor availability, and wage pressures were strong. Price pressures remained elevated; certain input prices eased, but firms were passing more of their input costs through to final prices. Manufacturing increased, with one contact noting that passing along higher prices hadn’t hampered demand.

Kansas City – Economic activity continued to grow at a moderate pace and was broad-based. Ongoing growth in manufacturing alongside renewed growth in the energy sector supported the regional economy. Consumer spending at restaurants and hotels was resilient through the recent surge in COVID cases. However, business travel did not resume as expected in September, with many large events being postponed.

Dallas – The District economy expanded at a solid rate, with broad-based growth across sectors. COVID-19 and labor and supply-chain constraints remained headwinds. Employment growth was robust, and wage and price growth remained highly elevated. Outlooks stayed positive, with most contacts expecting stronger business six months from now, though uncertainty rose.

San Francisco – Economic activity in the District strengthened moderately. Labor market tightened further as wages and price levels climbed. Retail sales expanded moderately while activity in consumer services slowed down somewhat. Conditions in the agriculture and manufacturing sectors strengthened slightly. Lending activity increased further while residential construction expanded notably.

David Schollaert

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