January's Beige Book was once again headlined by the utterly useless comment that "economic activity across the United States expanded at a modest pace in the final weeks of 2021" that has come to reflect the snoozy name of the report. And while we saw recurring and familiar themes mentioned over and over, including supply chain issues and labor shortages, the report noted some signs of easing inflation perhaps as a result of Omicron (which was mentioned no less than 44 times) began to hit activity.
That said, there were few big picture surprises, with the report noting that growth continued to be constrained by ongoing supply chain disruptions and labor shortages, and despite the modest pace of growth, demand for materials and inputs, and demand for workers, remained elevated among businesses. Lending activity picked up slightly toward the end of the year, led by commercial real estate borrowers. At the same time, consumer spending continued to grow at a steady pace (funded primarily by a surge in credit card spending) ahead of the rapid spread of the Omicron COVID-19 variant. Perhaps the best news is that after peaking in September, mentions of "shortages" have dropped for the 3rd consecutive month to levels from last June.
And now the not so good news: most Districts noted a sudden pull back in leisure travel, hotel occupancy and patronage at restaurants as the number of new cases rose in recent weeks. Although optimism remained high generally, several Districts cited reports from businesses that expectations for growth over the next several months cooled somewhat during the last few weeks. The manufacturing sector continued to expand nationally, with some regional differences in the pace of growth. Overall activity in the transportation sector expanded at a moderate pace. While farm incomes were elevated throughout 2021, agricultural conditions were marred by drought conditions across several Districts.
Some more details from the report:
- Economic activity expanded at a modest pace in the final weeks of 2021.
- Contacts from many Districts indicated growth continued to be constrained by ongoing supply chain disruptions and labor shortages.
- Despite the modest pace of growth, demand for materials and inputs, and demand for workers, remained elevated among businesses.
- Lending activity picked up slightly toward the end of the year, led by commercial real estate borrowers.
- Consumer spending continued to grow at a steady pace ahead of the rapid spread of Omicron.
- Most Districts noted a sudden pull back in leisure travel, hotel occupancy and patronage at restaurants as the number of new cases rose.
- Although optimism remained high generally, several Districts cited reports from businesses that expectations for growth over the next several months cooled somewhat during the last few weeks.
- The manufacturing sector continued to expand nationally, with some regional differences in the pace of growth.
- Overall activity in the transportation sector expanded at a moderate pace.
- While farm incomes were elevated throughout 2021, agricultural conditions were marred by drought conditions across several Districts.
Employment and Wages:
- Employment grew modestly in recent weeks, but contacts from most Districts reported that demand for additional workers remains strong.
- Job openings were up but overall payroll growth was constrained by persistent labor shortages.
- Tightness in labor markets drove robust wage growth nationwide, with some Districts highlighting additional growth in labor costs associated with non-wage benefits.
- While many contacts noted that wage gains among low-skill workers were particularly strong, compensation growth remained well above historical averages across industries, across worker demographics, and across geographies.
- Besides wage gains, many contacts indicated adjustments to job demands – such as accommodating part-time work or adjusting qualification requirements – to attract more applicants and retain existing workforces.
- Contacts from most Federal Reserve Districts reported solid growth in prices charged to customers, but some also noted that price increases had decelerated a bit from the robust pace experienced in recent months.
- Wholesale and materials prices contributed to pricing pressures across a wide range of industries, spanning service providers and goods producers.
- Many contacts attributed the high cost of inputs to ongoing supply chain disruptions.
- Some Districts reported that transportation bottlenecks had stabilized in recent weeks, though procurement costs remained elevated.
- Ongoing labor shortages and associated wage growth also added cost pressures to businesses.
Finally, here is a snapshot of business activity by Fed district:
- Boston: Business activity was steady or up slightly, although performance was somewhat mixed. Employment increased modestly and wages advanced at a strong pace. Input prices climbed at a rapid pace and output prices increased moderately. The outlook was mostly positive but uncertainty remained elevated.
- New York: The regional economy grew at a subdued pace in recent weeks, restrained by intensifying supply disruptions, labor shortages, and the Omicron outbreak. However, holiday season sales were reported to be fairly solid. Employment and wages increased, and businesses noted ongoing widespread escalation in both input costs and selling prices. Still, contacts continued to express optimism about the near-term business outlook.
- Philadelphia: Business activity grew modestly during the current Beige Book period – slower than the prior period – and remained below pre-pandemic levels. Vaccination rates rose slightly, but the Omicron variant caused COVID-19 cases to surge – disrupting business once more. Overall, employment growth slowed to a modest pace, and price increases ebbed to a moderate rate, while wage increases continued to rise sharply.
- Cleveland: The District's economy expanded at a relatively steady pace, although the emergence and spread of the Omicron variant of COVID-19 dampened sales for some restaurants and hotels. Contacts did not expect Omicron to derail the recovery, but they did anticipate slower growth in the near term. While labor shortages and supply challenges persisted, most firms expected meaningful relief from the latter by yearend 2022.
- Richmond: The regional economy grew modestly in recent weeks. Manufacturers, ports, and trucking companies reported moderate to robust growth while retail, travel, and tourism remained strong. Home sales and mortgage lending slowed while commercial activity held strong. Employment rose moderately and the tight labor market led to strong wage and price growth.
- Atlanta: Economic activity expanded at a moderate pace. Labor markets remained tight and wage pressures grew. Nonlabor costs rose slightly. Retail sales were healthy. Domestic leisure travel remained solid. Business travel improved slightly. Housing demand was strong. Commercial real estate conditions improved. Manufacturing activity was robust. Banking conditions were steady.
- Chicago: Economic activity increased modestly. Employment, consumer spending, and business spending grew modestly; manufacturing was up slightly; and construction and real estate was flat. Wages and prices rose rapidly, while financial conditions were little changed. Agricultural incomes were strong in 2021.
- St. Louis: Economic conditions have improved at a moderate rate since our previous report. Employers reported continued difficulties hiring to meet increased demand. Input cost pressures have led to price increases, most of which firms were able to pass on to consumers. Contacts expressed concern about the Omicron variant's impact on consumer demand and the supply of labor.
- Minneapolis: The region's economy saw moderate growth, despite challenges related to labor, higher prices, supply chains, and the Omicron variant. Employment continued to grow, but more slowly than hiring demand. Holiday shopping was strong, and manufacturers reported robust activity. Strong commodity prices and good crop harvests in some areas helped offset widespread drought. Minority- and women-owned business enterprises saw a boost in entrepreneurship.
- Kansas City: The Tenth District economy finished 2021 at a moderate pace of growth. Businesses reported several non-traditional actions aimed at mitigating supply constraints, resorting to consumer online auction platforms to procure parts and offering enhanced, sometimes novel, benefits to attract workers. Growth in consumer spending on leisure activities was strong. Prices increased broadly. Plans for capital outlays cooled somewhat in December.
- Dallas: The District economy expanded at a robust pace, with gains broad-based across sectors. Employment growth was strong, and wage and price growth continued to be highly elevated. Home sales remained high, and loan growth increased further. Outlooks improved overall, though uncertainty increased amid a new surge in COVID-19 cases and concern that labor and supply-chain shortages will persist well into 2022.
- San Francisco: Economic activity strengthened modestly over the reporting period. Employment grew at a moderate pace, while overall conditions in the labor market remained tight. Wages and price levels climbed significantly. Retail sales increased notably, while conditions in the consumer and business services sectors deteriorated somewhat. Lending activity remained steady, and residential construction continued to expand at a slightly slower pace.
Source: Federal Reserve