Improving economy stunted by labor, supply shortages

The Federal Reserve says economic conditions have moderately improved since mid-July but remain hampered by ongoing labor and raw material shortages. 

The Beige Book, released Sep. 8, revealed widespread reports of ongoing wage and price pressures and elevated rates of employees leaving for more pay with other companies. In the Federal Reserve Bank of Cleveland region, more than 80 percent of contacts said that their non-labor costs had risen in the last two months, higher than in the previous survey. About two-thirds of respondents said they had increased wages during the previous two months, the highest since the Fed began keeping records in 2016. One-third of respondents in the Federal Reserve Bank of Minneapolis region said that non-labor input costs were up by more than 10 percent compared to pre-pandemic levels; one-quarter said they had increased customer prices for products or services by more than 10 percent over that same period. 

In the Ninth District, growth was seen in employment, consumer spending, construction, manufacturing, agriculture and energy. A mid-August survey of construction firms found that 70 percent had been hiring as of late. Another survey found that three-quarters of hospitality and tourism firms in Minnesota were hiring to either replace turnover or expand staffing. District-wide, about one-third of all firms, and nearly half of large firms, said wages had risen by 3 percent or more over the past year. Hospitality and tourism firms in northern and central Minnesota reported strong overall activity, with many exceeding 2019 levels. Hospitality and tourism firms in the Twin Cities, however, saw recent gains but were still well below previous norms.

Initial unemployment claims continued to decline through early August, particularly in the Dakotas and Montana. Worker needs varied on location: Low-wage workers in the Twin Cities said they were concerned with being able to pay for housing, utilities and food. Workforce development professionals in Montana said housing and childcare affordability were major challenges job seekers faced. 

Federal Reserve Bank of Chicago 

Employment increased in the Seventh District. Manufacturing grew moderately, and business spending rose at a modest pace. Consumer spending slightly decreased but remained elevated. Leisure and hospitality spending slowed, with contacts attributing those decreases to the spread of the delta variant. Businesses, especially in the restaurant and manufacturing sectors, reported limiting operating hours because of a lack of workers. 

“Contacts pointed to childcare challenges, retirements and financial support from the government as important factors limiting labor supply,” the report stated. “A number of contacts indicated that they were delaying the return to in-person work because of rising Covid-19 cases.” 

New and used light vehicle inventories were low across the Seventh District as auto production continued lagging. Most manufacturing contacts reported that business was above pre-pandemic levels, many running at full capacity.  

Federal Reserve Bank of Kansas City 

Most Tenth District businesses said they have altered operations. Retail spending grew at a slower pace than in recent months, mainly due to a decline in spending on motor vehicles. 

Motor vehicle dealers, health care providers and accommodation businesses reported employment declines. Those losses were more than offset by hiring in other service sectors and employment gains for manufacturing businesses. Tenth District manufacturing expanded in July and August, particularly for durable goods producers. Energy activity increased modestly but came without employment gains. Oil price declines contrasted with increases in natural gas costs to leave revenue and profits mixed among district contacts.  

Federal Reserve Bank of St. Louis 

Despite demand, Eighth District residential real estate volumes continued being hampered by supply disruptions. Only 11 percent of contacts expected economic conditions for the remainder of this year “to be better or somewhat better” than last year.  

Federal Reserve Bank of Cleveland 

Economic activity grew solidly across the Fourth District, but at a slower pace than the previous reporting period as supply constraints limited the ability of many firms to keep up with growing demand. Staff levels modestly increased, and many firms said it was challenging to fill open positions across a variety of occupations and skill levels.