According to the Federal Reserve, inflation has not been an issue, but businesses are increasingly having a problem finding workers, particularly low-skill jobs. Sectors that are getting affected include manufacturing, transportation, and construction.
The Fed said that there was an expansion of economic activity across the 12 districts. The pace was rated between ‘modest and moderate.’
The Fed said, “Labor markets remained tight, and employers in most districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers.”
Many firms also forecast labor demand to grow over the next six months while wage growth will continue to be modest.
According to Fed’s beige book report, the manufacturing sector enjoys widespread optimism as output continues to grow. The pace of economic expansion was also “equally split between modest and moderate.” The report also noted the slowing down of home-sales growth which can be attributed to a lack of inventory. Residential construction growth, on the other hand, increased its pace.
The wage increases ranged from modest to moderate, and there is still the potential for wages to create cost-push inflation. As such, this will be something the Fed will review ahead of its May 2-3 policy meeting to determine the benchmark lending rate.
The Fed is expected to increase key interest rate at least two more times this year. Rates will be raised more quickly if inflation suddenly accelerates.
According to the Fed’s beige book report, travel and tourism activity were overall positive.
In February, the Personal Consumption Expenditures price index, which is the preferred measure of inflation of the Fed increased by 2.1%. It breached the Fed’s target of 2% for the first time since 2012.
According to the report, businesses in the Fed’s Atlanta district struggled to find, hire and hold onto quality workers in skilled technical jobs, sales, finance and information technology.
The Fed in Cleveland, Ohio highlighted that some large manufacturers were cautious about the new found optimism. They say the strong dollar and the lack of clarity in trade policy are important issues of concern.
For business in the Dallas area, they were particularly concerned with trade policies that relate to Mexico because Mexico has close ties to Dallas firms and society. The Boston Fed is also concerned with trade deals as the area is a manufacturer of test equipment which exports most of its production.
In Richmond, Virginia, the labor shortages had increased labor costs and reduced the margins to businesses. As such they have to reduce their planned capital spending.
In St. Louis, coal production so far is 10% more than last year.
Minneapolis, on the other hand, experienced many closures of retail stores, both large and small. The Minneapolis Fed said, “firms catering to tourists in the Black Hills region reported difficulty finding labor, mainly seasonal immigrant labor they have traditionally used.”
In San Francisco Fed’s district, hotel stays were weak because of the new immigration policy and increased scrutiny of foreign arrivals.