Research >> Economics

Beige Book: Economic Activity expanded at a modest to moderate pace


Economic activity grew at a modest to moderate pace in most Federal Reserve Districts during October and early November. Several Districts noted that despite strong demand, growth was constrained by supply chain disruptions and labor shortages. Consumer spending increased modestly; low inventories held back sales of some items, notably light vehicles. Leisure and hospitality activity picked up in most Districts as the spread of the Delta variant ebbed in many areas. Construction activity generally increased but was held back by scarce materials and labor. Nonresidential real estate activity increased widely, while residential real estate activity grew in some Districts but declined in others. Manufacturing growth was solid across Districts, though materials and labor shortages limited expansion. High freight volumes continued to strain distribution systems. Energy activity was generally higher, growth in professional and business services varied widely, and demand for education and health services was largely unchanged. Loan demand increased in almost all Districts, though some reported declines in residential mortgages. Agriculture saw improved financial conditions overall and rising land values. The outlook for overall activity remained positive in most Districts, but some noted uncertainty about when supply chain and labor supply challenges would ease.

Employment and Wages
Employment growth ranged from modest to strong across Federal Reserve Districts. Contacts reported robust demand for labor but persistent difficulty in hiring and retaining employees. Leisure and hospitality and manufacturing contacts reported an uptick in employment, but many were still limiting operating hours due to a lack of workers. Contacts in several other sectors also noted labor-related constraints on meeting demand. Childcare, retirements, and COVID safety concerns were widely cited as sources that limited labor supply. Many Districts noted concerns that the federal vaccination mandate could exacerbate existing hiring difficulties. Nearly all Districts reported robust wage growth. Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements.

Prices
Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy. There were wide-ranging input cost increases stemming from strong demand for raw materials, logistical challenges, and labor market tightness. But wider availability of some inputs, notably semiconductors and certain steel products, led to easing of some price pressures. Strong demand generally allowed firms to raise prices with little pushback, though contractual obligations held back some firms from increasing prices.

Highlights by Federal Reserve District

Boston
Business activity in the First District expanded at a modest pace on balance, but results were mixed. Sales of single-family homes softened further relative to their frenzied recent pace. Labor demand was robust but hiring activity was modest in light of labor scarcity. Price increases were moderate. The outlook was mostly positive but marked by uncertainty.

New York
The regional economy continued to grow at a modest pace in recent weeks, restrained by intensifying supply disruptions and labor shortages. Employment and wages increased, and businesses noted ongoing widespread escalation in both input costs and selling prices. Nevertheless, contacts continued to express optimism about future business prospects.

Philadelphia
Business activity grew moderately during the current Beige Book period—faster than the prior period—but remained below pre-pandemic levels. Vaccination rates rose slightly, but COVID-19 cases also resumed rising, while the vaccine mandate hit a wall with some workers. Overall, employment growth picked up to a moderate pace, but wage and price growth picked up, and sharply.

Cleveland
The District's expansion picked up a bit after slowing during the summer and early fall. Contacts reported that supply challenges continued to limit sales and output growth. Labor availability changed little recently, leaving many firms with open positions and unsatisfied demand. Ongoing shortages of inputs and labor put further up-ward pressure on costs, and more firms reported raising output prices over the past two months.

Richmond
The regional economy continued to expand at a modest rate. Growth continues to be constrained by labor shortages and supply chain issues. Firms faced challenges filling open positions as well as increased turnover, leading to wage increases for new and existing workers. Price growth further intensified recently from an already elevated rate.

Atlanta
Economic activity expanded at a moderate pace. Labor markets remained tight and wage pressures grew. Nonlabor costs rose. Retail sales strengthened. Domestic leisure travel remained solid. Residential real estate demand was strong. Commercial real estate conditions improved. Manufacturing activity was robust. Banking conditions were stable.

Chicago
Economic activity increased moderately. Employment and business spending grew moderately; consumer spending and manufacturing were up modestly; and construction and real estate was flat. Wages and prices increased strongly, while financial conditions improved slightly. A larger than expected corn and soybean harvest pushed up anticipated 2021 farm income.

St. Louis
Economic conditions have shown modest improvement since our previous report. Contacts reported continued difficulties hiring to meet increased consumer demand. Wage increases and supply chain shortages have led to price increases across several sectors. The overall outlook is optimistic due to anticipated strong demand.

Minneapolis
The District economy saw moderate growth despite continued challenges related to labor, higher prices, and supply chains. Prices rose as firms passed higher input costs to consumers. Employment grew moderately, but tight labor precluded even stronger gains. Consumer demand grew, but the spread of the Delta variant slowed some activity. Ag conditions improved, but drought remained problematic. Minority- and women-owned business enterprises saw mixed activity.

Kansas City
Economic activity continued to grow at a moderate pace. High expectations for future growth were supported by significant increases in orders for goods and services in the future. Several contacts noted that their business is booked out further than ever previously experienced. Most contacts attributed the backlogs in their businesses to both elevated demand and ongoing supply factors. Amid supply disruptions, desired inventory levels rose.

Dallas
The District economy expanded at a solid pace, though supply-chain bottlenecks and staffing challenges remained headwinds. Employment gains were robust, and wage and price growth continued to be highly elevated. Housing and industrial demand remained solid, and office leasing ticked up. Outlooks were optimistic but uncertainty crept higher due to worsening supply-side constraints.

San Francisco
Economic activity strengthened moderately over the reporting period. Employment rose at a moderate pace, while overall conditions in the labor market remained tight. Wages and price levels climbed significantly. Retail sales expanded markedly, while conditions in the agriculture and manufacturing sectors strengthened further. Lending activity increased modestly, and residential construction expanded at a brisk pace.




Posted: December 1, 2021 Wednesday 02:00 PM




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