Fed’s “Beige Book” Downgrades Economic Growth

By at 8 September, 2021, 9:48 am

by Raymond J. Keating –

According to the latest edition of the Federal Reserve’s “Beige Book,” economic growth has been downgraded from “moderate to robust” in the previous report to “moderate.”

According to this snapshot of the economy based on interviews with business contacts, economists, and assorted experts, along with Fed analyses, the slowdown culprits were what have been widely reported, that is, the Delta variant, supply chain issues and labor shortages.

As noted in the report, “The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.”

As for the other part of the slowing story:

“The other sectors of the economy where growth slowed or activity declined were those constrained by supply disruptions and labor shortages, as opposed to softening demand. In particular, weakness in auto sales was widely ascribed to low inventories amidst the ongoing microchip shortage, and restrained home sales activity was attributed to low supply.”

Regarding labor shortages, they were noted to be widespread and “extensive,” and serving to impede business activity. Factors contributing to the labor shortages were pointed out, namely, “increased turnover, early retirements (especially in health care), childcare needs, challenges in negotiating job offers, and enhanced unemployment benefits.”

And supply chain constraints put upward pressure on input prices across much of the economy.

Finally, in terms of expectations, it was noted that “businesses in most Districts remained optimistic about near-term prospects, though there continued to be widespread concern about ongoing supply disruptions and resource shortages.”

Of course, if the Biden administration and Congress successfully push ahead with their agenda of substantial increases in tax and regulatory burdens, that will result in further constraints placed on entrepreneurship, business and investment, and therefore, on economic growth.

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


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