The U.S. economy expanded “at a modest pace” over the past month despite decades-high inflation and ongoing workforce shortages, according to the Federal Reserve’s April Beige Book.
In the Cleveland Fed region, nonresidential construction and real estate activity increased, including for industrial, retail and apartment spaces. “There has also been a recent uptick in leasing activity for office spaces,” the Fed stated. “Leasing demand is expected to remain strong going forward, with continual improvements anticipated for office spaces.”
Business contacts in the Chicago Fed region reported using more lines of credit to finance inventories. In the St. Louis Fed region, respondents said high liquidity throughout the banking system would continue placing downward pressure on interest rates.
“Consumer spending accelerated among retail and non-financial service firms, as COVID-19 cases tapered across the country,” the report stated. “Manufacturing activity was solid overall across many districts, but supply chain backlogs, labor market tightness and elevated input costs continued to pose challenges on firms’ abilities to meet demand.”
Several Fed districts reported moderate employment gains as the U.S. unemployment rate hit 3.6 percent in March, according to the Bureau of Labor Statistics. Labor markets in the Kansas City Fed region are experiencing a record high number of vacant jobs for each unemployed person. Firms within the Minneapolis Fed area reported more interest in using automation to bring down wage pressures and alleviate the labor shortage. “Many firms reported significant turnover as workers left for higher wages and more flexible job schedules,” the Fed stated. “Persistent labor demand continued to fuel strong wage growth, particularly for footloose workers willing to change jobs.”
Inflation remained a major factor for many businesses, with firms reporting increasing costs to consumers, as the year-over-year Consumer Price Index reached a decades-high 8.5 percent in March. Manufacturing businesses reported large increases in raw materials, transportation and labor costs, the report stated.
Businesses reported experiencing impacts from Russia’s war in Ukraine: Cleveland Fed respondents said the war “had significantly increased uncertainty and put further upward pressure on costs, particularly for energy, metals, and agricultural commodities.” In the Chicago Fed region, farmers said ag markets “experienced price increases and substantial volatility” because of the war. In the Kansas City Fed region, the war caused input prices to jump, but businesses saw no impacts on demand, hiring or planned capital expenditures.
U.S. ag conditions remained mixed, according to the Fed: Farmers saw earnings boosted due to skyrocketing crop prices, but drought conditions caused challenges for some districts, and increased input costs limited producer margins. In the Chicago Fed region, increasing input costs led to a shift in planting plans from corn to soybeans, because the latter requires less expensive input expenditures. Also, farmland prices within the region continued to increase, partially driven by greater investor interest. In the Minneapolis Fed region, despite high commodities prices causing farm income to soar, livestock and dairy producer profit margins tightened. Early reports this year indicated a reduction in district corn acres planted along with an increase in wheat and soybean acres.