Fed’s “Beige Book” Confirms Economic Growth Pitted Against Supply Constraints, Higher Costs

By at 15 July, 2021, 9:38 am

by Raymond J. Keating –

The Federal Reserve publishes the “Beige Book” eight times a year, and it’s a snapshot on the economy based on interviews with business contacts, economists, and assorted experts, along with reports from Fed bank and branch reports. The latest “Beige Book” pointed to a strengthening economy experiencing “moderate to robust growth.”

Anytime that the “Beige Book” categorizes growth as “robust,” that’s a good thing. Among the sectors experiencing the strongest growth were transportation, travel and tourism, manufacturing, and nonfinancial services.


At the same time, the Fed made clear the challenges in the supply chain:

“Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods… many contacts expressed uncertainty or pessimism over the easing of supply constraints.”

Additional Constraints and Challenges: Labor and Inflation

Those constraints were evident on the labor front, as the Fed explained:

“Labor shortages were often cited as a reason firms could not staff at desired levels, with firms in three Districts delaying expansion or scaling back services due to understaffing. Higher than average turnover and lower retention rates were reported in three Districts. All Districts noted an increased use of non-wage cash incentives to attract and retain workers. Firms in several Districts expected the difficulty finding workers to extend into the early fall.”

Indeed, it’s likely that these challenges will persist as many workers are shifting career expectations given their pandemic experiences, and given that federal unemployment benefits officially end on September 6 (though 26 states have ended or will end those benefits early).

Of course, rising costs and prices also were noted:

“Pricing pressures were broad-based and grew more acute in the hospitality sector, as the reopening of hotels and restaurants confronted limited supplies of materials and workers. Construction costs remained high, but lumber prices reportedly eased a bit. Container prices returned to very high levels after having moderated in the spring… While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months.”

Can Policy Provide Solutions?

As noted in a recent SBE Council brief on inflation, I pointed out that, unfortunately, federal policymaking is being pointed in a direction that imposes additional constraints on entrepreneurs, businesses, investors and workers.

As summed up previously:

“The right policy mix for strong growth and low inflation is monetary policy focused on price stability, and incentivizing the supply-side of the economy via tax and regulatory relief, free trade, and restrained government spending. Right now, however, the policy mix – or at least where part of it might be headed – is exactly wrong.”

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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