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Beige Book: Cautious Optimism Among Northeastern Businesses as Economic Headwinds Continue

  • Federal Reserve’s Beige Book report shows continued modest or moderate economic growth as well as cautious optimism
  • Trend appears despite challenges such as labor and supply shortages, wave of COVID-19 infections
  • New England respondents generally mirror national trends, showing steady growth

Summary by Dirk Langeveld

Economic growth in the United States has continued at a modest or moderate rate despite a variety of challenges impacting businesses, according to the Federal Reserve’s latest Beige Book report. In New England, business owners were cautiously optimistic as trends showed a steady recovery from the COVID-19 pandemic.

The Beige Book assesses current economic conditions based on mostly qualitative information collected from the 12 Federal Reserve Districts. The report is issued eight times a year, with the final one for 2021 set to appear on Dec. 1.

National trends noted in the latest Beige Book include positive growth in consumer spending, moderate to strong growth in manufacturing, and flat or modest loan demand. Several districts reported a slowdown in economic growth as they grappled with labor and supply issues as well as rising COVID-19 cases.

Several industries are reporting difficulty finding workers to fill available job openings, including transportation, technology, retail, hospitality, and manufacturing. Companies are also reporting high turnover due to existing workers departing for other jobs, retirements, and absences due to COVID-19, child care, or COVID-19 vaccine mandates. Some of these businesses have reduced their hours or cut production as a result.

Employers have also responded by strengthening their training opportunities, increasing wages, automating some processes, and offering signing bonuses. Efforts aimed at retaining existing workers include increased merit bonuses, flexible schedules, and more vacation time.

Supply chain bottlenecks and higher demand for products and raw materials are driving higher input prices, as are factors like commodity shortages, higher transport costs, and labor shortages. While previous reports showed that firms often tried to hold prices steady by reducing costs, many are now opting to raise prices as consumer demand remains strong.

Respondents had differing opinions on price pressures. Some expect that they will be ongoing, while others foresee them moderating over the next 12 months.

In the district served by the Federal Reserve Bank of Boston, which serves the bulk of New England, trends included moderate revenue gains among information technology and software firms; stable to modest growth in retail sales, which were above pre-pandemic levels; moderate wage increases; and improved travel and hotel occupancy trends, although air travel through Boston remains about 35 percent below 2019 levels and hotel occupancy 27 percent lower.

Manufacturers’ input prices were 10 to 30 percent higher compared to the previous year, and two-thirds were raising their output prices in response. Manufacturers reported mixed performances, but most said their revenues were higher on an annual basis. Some reported production delays or trouble maintaining adequate inventory, but capital expenditures remained robust with no major changes to spending plans.

The future of office leasing remained uncertain, as lease activity remained slow. There were further uncertainties due to rising COVID-19 infections and expectations of a more permanent shift to remote and hybrid work. While it was anticipated that many businesses would reassess their office space needs, it was unclear how much they were willing to cut their office footprint.

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