Fed Beige Book Points to Ongoing Economic Constraints, and Some Causes

By at 1 December, 2021, 6:17 pm

by Raymond J. Keating –

The latest Federal Reserve “Beige Book” report confirms, once again, the very real impact that supply-chain issues and labor shortages are having on the economy.

The Fed noted that information collected on or before on November 19 pointed to economic growth running at a modest to moderate pace. That’s not exactly what we need to be experiencing to make up for lost growth over the past two years.

And once again, the message was unmistakable: supply chain and labor challenges are causing significant problems.

Demand was reported as being strong, but failing to be met due to supply chain problems and labor shortages.

As noted in the report:

“Several Districts noted that despite strong demand, growth was constrained by supply chain disruptions and labor shortages. Consumer spending increased modestly; low inventories held back sales of some items, notably light vehicles. Leisure and hospitality activity picked up in most Districts as the spread of the Delta variant ebbed in many areas. Construction activity generally increased but was held back by scarce materials and labor. Nonresidential real estate activity increased widely, while residential real estate activity grew in some Districts but declined in others. Manufacturing growth was solid across Districts, though materials and labor shortages limited expansion.”

On the labor front, three points stood out:

● “Childcare, retirements, and COVID safety concerns were widely cited as sources that limited labor supply.”

● “Many Districts noted concerns that the federal vaccination mandate could exacerbate existing hiring difficulties.”

● “Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements.”

At the same time, some easing of ills were noted, namely, greater availability of semiconductors and certain steel products.

Entrepreneurs, businesses and workers continue to work through the historic problems created by the pandemic and related shutdowns. While the total loss of small businesses remains something of mystery, clearly closed firms play into these woes, and hopefully, record levels of business applications for tax ID numbers point to greater growth not too far down the road. Policy will come into play here, as these potential new business owners need to remain somewhat confident in their ability to succeed. Tax, regulatory and spending policies that harm that confidence – as well as the confidence of consumers and existing businesses – will undermine the economic outlook and recovery, and therefore the rate and volume of startup activity.

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


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