Economic growth remains modest

The U.S. expanded “at a modest pace” during the final stages of last year as ongoing supply chain disruptions and labor shortages hampered further growth, according to the Federal Reserve’s Beige Book.

Manufacturing grew nationally, albeit with regional differences. The Jan. 12 report revealed that construction and real estate markets were flat but ag income strong in the Chicago area. In the Minneapolis Fed region, a good crop harvest helped to offset widespread drought. Midwestern ag professionals expect income to drop this year, as recent growth in input prices has outpaced growth in ag goods prices. 

Lending activity picked up at the end of last year, led by a strong commercial real estate market. In the Kansas City Fed region, loan demand from CRE borrowers “showed robust growth in recent weeks,” primarily from a jump in residential real estate construction and land development project lending, according to the Fed. 

Demand for materials, inputs and workers remained high nationwide late last year, fueling decades-high inflation readings. As reported by The Wall Street Journal, U.S. inflation rose at its fastest pace in nearly 40 years in 2021. The U.S. unemployment rate was under 4 percent in December, according to the Bureau of Labor Statistics. Job openings were up, but payroll growth was slowed by labor shortages. 

In the Michigan Peninsula, current job openings nearly doubled those from a year prior. Those shortfalls drove wage growth, with some districts experiencing additional jumps in labor costs associated with non-wage benefits. Other businesses reported accommodating part-time work requests or changing qualification requirements to ease the worker shortfall. In the Kansas City Fed region, businesses reported using consumer online auction platforms to procure parts and offering novel benefits to attract workers.

“While many contacts noted that wage gains among low-skill workers were particularly strong, compensation growth remained well above historical averages across industries, across worker demographics, and across geographies,” the Fed stated. 

Consumer spending continued to grow ahead of the omicron Covid-19 variant. “Most districts noted a sudden pull back in leisure travel, hotel occupancy and patronage at restaurants as the number of new cases rose in recent weeks,” the report stated. “Although optimism remained high generally, several districts cited reports from businesses that expectations for growth over the next several months cooled somewhat during the last few weeks.”