- Businesses show more optimism for year ahead in “Beige Book” report from Federal Reserve for the start of the year
- Manufacturing grows despite supply chain challenges, while hospitality and leisure activity remains depressed
- Businesses report challenges in finding qualified workers, anticipate higher prices
Businesses continued to report challenges related to the COVID-19 pandemic in the Federal Reserve’s latest “Beige Book” update. At the same time, companies expressed more optimism for the next six to 12 months as vaccines are distributed and consumer spending activities potentially return to pre-pandemic levels.
The Beige Book is based on responses from businesses collected by Federal Reserve banks that serve 12 districts across the United States. In January and February, there were mixed results in consumer spending and auto sales but improvements in manufacturing, oil and gas, agricultural, and transportation activity. Hospitality and leisure remained depressed, but some districts reported a slight uptick in travel and tourism.
Overall, businesses reported ongoing challenges in attracting and retaining qualified workers, with many planning to increase wages as part of an effort to attract employees. Companies also expressed concerns that the pandemic, child care needs, and more generous unemployment benefits were making it more difficult to find workers.
Supply chain disruptions and high demand were driving up prices in areas such as steel and lumber. Businesses also reported higher transportation costs due to capacity constraints and increased fuel prices.
The Federal Reserve Bank of Boston, which heads the First District encompassing the New England states, reported strong manufacturing activity as well as a high demand for industrial and laboratory spaces to support life sciences businesses. There was a strong demand for labor at manufacturing, legal services, health care, and scientific and technical firms, with a surplus of lower wage workers.
Demand was weaker for restaurants, hotels, and office and retail space. The district also had robust auto and retail sales, with companies expressing more optimism due to the return of warmer weather, the vaccine rollout, and pent-up consumer demand.
The Federal Reserve Bank of New York, reporting on District 2 (Fairfield County in Connecticut as well as New York, northern New Jersey, Puerto Rico, and the U.S. Virgin Islands), said economic activity declined modestly at the start of the year. Businesses reported weaker employment in most sectors, an anticipated uptick in prices due to higher costs in areas such as metals and construction materials, and flat or declining consumer spending.
Nevertheless, businesses in this district were also optimistic about conditions in the coming year. The Federal Reserve Bank of New York noted signs that tourism in New York City has grown, including rising hotel occupancy rates, eased dining restrictions, and greater museum attendance.
