Fall economy growth slowed by supply disruptions, labor shortages

The Midwest economy grew modestly to moderately during October and early November despite supply chain disruptions and labor shortages, according to the Federal Reserve’s most recent Beige Book

In the Ninth Fed district, prices increased as firms passed higher input expenses to consumers. Consumer demand increased, but the spread of the Delta variant slowed some activity, according to the Fed. Ag conditions improved, but drought conditions remained. Minority- and women-owned businesses saw mixed activity. 

In the Chicago Fed region, employment and business spending grew moderately and modest growth was observed in consumer spending and manufacturing. Construction and real estate sectors were flat. A larger-than-anticipated soybean and corn harvest increased expected farm income for this year. 

There are high expectations for future growth within the Kansas City Fed region, supported by large jumps in orders for goods and services. Several contacts said their businesses were booked out further than previously anticipated, due to elevated demand and ongoing supply factors. 

The overall economic outlook remained positive in most areas, but uncertainty remains over when supply chain and labor supply challenges will ease. Childcare, retirements and Covid-19 safety concerns were cited as reasons for the workforce shortage. Many districts reported concerns that any federal vaccination mandate would only worsen hiring challenges. Those challenges, however, are causing employers to raise wages and offer bonuses and flexible working arrangements.  

Several Fed districts reported modest increases in consumer spending; low inventories slowed the sales of some goods, especially vehicles. Strong demand for raw materials, logistical challenges and the tight labor market are leading to price hikes throughout the economy. Loan demand increased in nearly the entire country. Construction increased but was also limited by scarce materials and labor, according to the Fed. Nonresidential real estate activity increased in many spots, and residential real estate activity was mixed.

 Greater supplies of semiconductors and some steel products led to the easing of some price pressures. Manufacturing grew across all districts despite those shortages, and high freight volumes continued straining distribution systems. Leisure and hospitality activity increased as the spread of the Delta variant slowed in many spots.