Fed Beige Book: Muddled Economy and Clouds of Uncertainty

By at 21 April, 2022, 1:15 pm


by Raymond J. Keating –

The latest Fed Beige Book, offering takes on the economy from assorted contacts outside the Federal Reserve system, presents a muddled overall view. That’s not surprising given the number of uncertainties looming.

The Fed reported that the economy has grown at a “moderate pace” since mid-February, with several Federal Reserve districts also reporting “moderate employment gains.”

The following highlights challenges on the manufacturing front that seem to persist across much of the economy:

“Manufacturing activity was solid overall across most Districts, but supply chain backlogs, labor market tightness, and elevated input costs continued to pose challenges on firms’ abilities to meet demand.”

That includes residential real estate.

What about the state of the labor market? It was noted:

“Demand for workers continued to be strong across most Districts and industry sectors. But hiring was held back by the overall lack of available workers, though several Districts reported signs of modest improvement in worker availability. Many firms reported significant turnover as workers left for higher wages and more flexible job schedules.”

Indeed, both inflationary pressures and demand for workers generated higher wages.

Of course, inflation looms like a dark shadow over businesses and the economy. It is worth quoting the Beige Book’s summary on inflation, as it drives home what businesses are facing:

“Inflationary pressures remained strong since the last report, with firms continuing to pass swiftly rising input costs through to customers. Contacts across Districts, particularly those in manufacturing, noted steep increases in raw materials, transportation, and labor costs. In multiple Districts, contacts reported spikes in prices for energy, metals, and agricultural commodities following the Russian invasion of Ukraine, and several noted that COVID-19 lockdowns in China had worsened supply chain disruptions. A few reports noted that input suppliers were making use of more flexible contract terms or only honoring price quotes for 24 hours. Strong demand generally allowed firms to pass through input cost increases to customers, for example, via fuel surcharges for freight and airline fares. However, contacts in a few Districts noted negative sales impacts from rising prices. Firms in most Districts expected inflationary pressures to continue over the coming months.”

There is no good news to be found in that sum-up. But that’s exactly what happens when inflation runs hot.

Looking ahead, the views of Fed contacts were reported as follows:

“Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices.”

Toss in efforts by the Biden administration and Congress to jack up tax and regulatory burdens, and the clouds of uncertainty thicken.

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


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