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Fed’s Latest Beige Book Reflects Ongoing Labor and Price Pressures, Improving Office Leasing

  • Federal Reserve’s Beige Book for the early summer shows strong jobs growth and labor demand as well as above-average price growth
  • In the Northeast, signals point to stronger tourism demand as well as modest improvements in office leasing
  • Supply chain constraints continue to cause problems for companies and contribute to price pressures

Summary by Dirk Langeveld

Businesses saw stronger growth in jobs and labor demand in the early summer as well as above-average price growth, according to the Federal Reserve’s latest Beige Book report. In the Northeast, economic growth was moderate with improvements in tourism and some better signals in office leasing.

The Beige Book collects information on economic conditions across the 12 Federal Reserve Districts, issuing eight reports a year to track changes based on input from businesses, economists, community organizations, and others. The latest report focuses on trends between late May and early July.

National economic trends

Each Federal Reserve District reported an increase in jobs, with the strongest labor demand for low-wage positions. While wages were up moderately overall, low-wage workers saw above-average increases to their compensation as companies sought to make themselves more competitive in a tight labor market. All districts also reported the growth in non-cash incentives to try to attract workers.

Price growth continued at an above-average pace, notably in the hospitality industry as accommodations and restaurants coped with supply and labor shortages. Higher costs in construction and container shipping were also impacting prices. Some companies expected this inflation to be transitory, in line with Fed projections, but most believe that higher input and sales prices will continue.

Some prices pressures resulted from more widespread supply disruptions. These included shortages in materials and labor, delivery delays, and inventory shortages of many consumer goods.

Nationally, economic growth was above average in manufacturing, non-financial services, transportation, and travel and tourism. Bank lending also increased modestly in most districts.

Northeast economic trends

The Federal Reserve Bank of Boston, whose district includes most of Connecticut, saw a modest increase in employment and moderate growth in wages and labor pressures. Some manufacturers and retailers reported challenges in finding workers. The district also reported that contacts specializing in food production, life sciences, and software were proceeding with hiring plans.

Companies generally planned to continue with price increases due to rising freight costs, higher input prices, and consumer willingness to pay more for products and services. Software and IT companies were keeping their prices flat in line with business models allowing only infrequent price adjustments.

Some signals pointed to stronger demand in the tourism market, including increased air travel through Boston and higher vacation bookings on Cape Cod. This was also reflected in retail and restaurant sales in tourism-dependent areas.

Commercial real estate showed mixed results, but the sector improved on balance with continued strong demand for industrial spaces. Office leasing remained fairly sluggish, but was up in Rhode Island and stable in Connecticut and Maine. Businesses also expected better retail growth and smaller reductions in office footprints than in previous reports.

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