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The outlook: Economic growth in the U.S. slowed to a moderate pace in early July through August, according to the Federal Reserve’s Beige Book of current economic conditions that it released Wednesday. Nevertheless, in some parts of the country, businesses said that they weren’t encountering difficulty in raising prices to account for higher costs they were incurring due to supply chain disruption. And some business contacts suggested that Americans could see “significant hikes” in prices in the coming months.
What happened: The worsening situation surrounding the COVID-19 pandemic prompted a pullback in dining out and travel, the Fed reported, even if other sectors such as manufacturing and transportation remained strong. However, supply shortages, including limited inventories of automobiles and homes for sales, further contributed to the economy’s retreat from its stronger pace of growth earlier this year.
Businesses remained optimistic, albeit concerned about continuing supply disruptions and labor shortages. Wages grew over the period studied, in light of the challenges that employers faced in hiring the workers they needed, especially in the West and the Midwest. Beyond increasing wages, companies were also resorting to other incentives including raises, bonus and flexible work arrangements to attract job applicants and keep existing employees on the payroll.
On the price front, inflationary pressures persisted due to supply-chain issues and materials shortages. The one shift from earlier this year, though, is that the cost of lumber has retreated from its previous highs.
The big picture: The latest Beige Book captured the anxiety surrounding the pandemic’s latest phase. The phrase “delta variant” was mentioned in the report more than 30 times, referring to the more contagious strain of the virus that causes COVID-19. Aside from causing Americans to rethink their travel plans or leisure activities, the new variant is throwing a wrench in the gears of companies’ return-to-office plans.
The good times are rolling for some industries though. The housing market continues to see steady demand across most parts of the country. And the Federal Reserve Bank of Boston noted that a business contact described the semiconductor industry as being in a “golden age.”
What they’re saying: “With expectations rising that a taper will likely happen before year-end, the question about the labor market, and how businesses are able to keep operating when there is such a labor shortage, and if prices will keep rising …. are all unanswered,” said Jennifer Lee, senior economist at BMO Capital Markets.
Market reaction: The Dow Jones Industrial Average
DJIA,
and the S&P 500 index
SPX,
were both down in Wednesday afternoon trading following the report’s release, as was the tech-heavy Nasdaq
COMP,
