Fed Beige Book: Moderate Economic Expansion in April/May

Sales of homes and condos were robust during the reporting period, but demand continued to outpace supply. Nonresidential construction increased modestly, but supply chain disruptions increased costs and, in some cases, delayed projects.

Inflation was a concern across Fed districts. Input costs continued to soar, especially for raw materials in construction and manufacturing, forcing firms to pass on cost increases to customers. Shortages of essential materials and components, along with freight delays, were widely reported.

Federal Reserve Board Governor Lael Brainard was optimistic that bumps in the economy will moderate as supply and demand rebalances. “Although continued vigilance is warranted, the inflation and employment data thus far appear to reflect a temporary misalignment of supply and demand that should fade over time as the demand surge normalizes, reopening is completed, and supply adapts to the post-pandemic new normal,” said Brainard in comments on Tuesday.

District Highlights as Reported in the May 2021 Beige Book:

Boston – Business activity in the First District expanded at a moderate pace. Restaurant sales were up sharply, and restaurant openings buoyed retail property leasing. Labor demand strengthened, but hiring was held back by labor shortages. Recruiting efforts intensified, with varying degrees of wage increases. Prices held mostly steady despite growing cost pressures.

New York – The regional economy continued to grow at a strong pace, with growth broad-based across industries. Hiring picked up and wages continued to grow moderately, with availability of workers cited as a top concern. Consumer spending and tourism picked up noticeably. Input price pressures have intensified further, and more businesses are raising their selling prices.

Philadelphia – Business activity continued at a moderate pace of growth during the current Beige Book period – still below levels attained prior to the pandemic. Supply constraints continued to limit growth, but may also be contributing to overstated perceptions of strong demand for labor and parts. Employment continued to grow modestly as did wage growth, while prices grew moderately.

Cleveland – The pace of business activity quickened, and contacts expect that demand will remain strong in the near term. However, supply-chain bottlenecks constrained growth and caused materials costs to escalate. Price hikes became more widespread as firms attempted to keep up with rising costs. Hiring activity was reportedly modest because of a dearth of job applicants. A greater share of firms boosted wages, especially for hourly workers.

Richmond – The regional economy expanded moderately in recent weeks. Manufacturers and service providers reported increased activity, but also faced higher labor and input costs as well as shortages of materials. Employment rose moderately but was constrained by challenges filling open positions. Prices rose briskly in recent weeks as some increased costs of business were passed along to customers.

Atlanta – Economic activity expanded at a moderate pace. Labor markets improved and wage pressures picked up for some positions. Some nonlabor costs remained elevated. Retail sales increased. Leisure, hospitality and tourism activity strengthened. Residential real estate demand remained strong. Commercial real estate conditions were mixed. Manufacturing activity improved. Banking conditions were steady.

Chicago – Economic activity increased moderately. Employment, consumer spending, business spending and manufacturing production all increased moderately, while construction and real estate was flat. Wages and prices rose moderately and financial conditions improved slightly. Prospects for agriculture income improved.

St. Louis – Contacts reported that economic conditions have moderately improved since the previous report. Many contacts described a situation in which growth in demand for their products or services is outpacing their growth in capacity.

Minneapolis – The District economy saw robust demand, tempered by inventory shortages and rising prices. Job openings increased, but wage growth was not well aligned with firms’ broader concerns over labor availability, and workforce contacts cited low wages as a barrier to job seekers taking available jobs. Manufacturing and construction activity continued to grow despite strong input cost pressures. Agricultural incomes grew sharply.

Kansas City – Economic activity rose moderately since the last survey. Consumer spending increased moderately, and sales were above pre-pandemic levels for the majority of retail, restaurant, and auto contacts. Most other sectors expanded as well, including commercial real estate, which increased for the first time since the pandemic started. However, about two-thirds of firms reported a negative impact from rising material prices and lack of availability.

Dallas – The District economy expanded at a solid rate, bolstered by continued strong growth in housing, manufacturing and nonfinancial services. Drilling activity rose further. Price pressures intensified. Reports of labor shortages were more widespread across sectors and skill levels than the last report. Outlooks stayed positive.

San Francisco – Economic activity in the District expanded significantly, and labor market conditions continued to improve modestly. Wages and inflation picked up further. Retail sales increased, and activity in the services sector strengthened moderately. Conditions in the manufacturing and agriculture sectors continued to improve. Residential construction remained strong, while lending activity grew somewhat.