Fed (Beige Book): Inflationary pressures will continue in the coming months – Moderate economic growth

The US economy expanded moderately from February to early April with little relief for businesses from high inflation and labor shortages, the Federal Reserve said in its latest Beige Book report on current economic conditions, released Wednesday. .

The latest data from US companies reveal the picture of an economy that has been boosted by the reduction of the coronavirus pandemic and which remains resilient despite maintaining high levels of inflation in the midst of supply chain problems.

According to the Fed report, inflation remains a concern, with demand still far outstripping supply in all sectors, from the labor market to trade, with the recent worsening of lockdowns in China, in the context of measures to curb the spread of the coronavirus, but also the sharp rise in food and energy costs as a result of Russia’s invasion of Ukraine.

“Supply chain problems, tight labor markets and rising input costs continue to pose challenges for businesses’ ability to meet demand,” said the Fed report, which reflects the outlook for the economy in the Fed’s 12 regions. “Estimates of future growth are overshadowed by the uncertainty caused by recent geopolitical developments and rising prices,” the Fed added.

Total economic activity

Economic activity, according to the Fed report, expanded moderately from mid-February onwards, while employment improved moderately, according to several regions. At the same time, consumer spending on retail and non-financial services increased, as coronavirus cases declined across the country.

Manufacturing activity remained broadly stable in most regions, but supply chain problems, tight labor markets, and rising input costs continued to challenge the ability of businesses to meet demand.

Vehicle sales remained largely limited due to low inventories, while movement in the commercial real estate market improved moderately as office occupancy and retail activity increased. At the same time, strong demand for residential real estate continues but supply remains limited.

Labor market

Employment grew at a moderate pace. Demand for labor continued to be strong in most regions and sectors of the economy, but the Fed said recruitment was disproportionate to the general shortage of available workers, although several regions reported signs of modest improvements in labor availability.

Increased labor demand continued to fuel the sharp rise in wages, especially for workers who were willing to change jobs.

Companies reported that inflationary pressures also contributed to rising wages, but higher wages did little to fill job vacancies.

Inflation

On inflation, the Fed report says inflationary pressures have remained strong, with businesses continuing to pass on rapidly rising input costs to consumers.

Several regions, especially those based on manufacturing, have reported sharp increases in raw material prices, transport and labor costs. In particular, many regions saw sharp rises in energy, metals and agricultural prices after the Russian invasion of Ukraine, while others said lockdowns to curb coronavirus spread in China exacerbated supply chain problems.

However, strong demand has generally allowed companies to pass on rising input costs to consumers, although some regions have reported that price increases have had an impact on sales.

A majority of Fed regions expect inflationary pressures to continue in the coming months.