Fed sees ‘widespread labor tightness’
THE US economy picked up steam with only modest inflation from September through early October, as some companies expected a tight labor market would exacerbate hurricane rebuilding efforts, a Federal Reserve survey showed.
The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Oct. 6, said economic activity increased even amid “major disruptions” across the South from hurricanes Harvey and Irma. Still, price pressures were described as “modest.”
“Labor markets were widely described as tight” and worker shortages in certain sectors “were also restraining business growth,” the report released Wednesday in Washington showed. “Despite widespread labor tightness, the majority of districts reported only modest to moderate wage pressures.”
Wage pressures were starting to build in some industries, including transportation and construction, the report said.
Such strong demand for workers was beginning to push some employers to add incentives to entice new hires and keep existing staff. “Growing use of sign-on bonuses, overtime, and other non-wage efforts to attract and retain workers were also reported,” the Fed said.
The report offered a possible explanation why such perks weren’t resulting in higher overall inflation: Companies were reluctant to pass on higher costs to their customers. “Several districts noted increased manufacturing input costs, but in most cases these weren’t passed through to selling prices,” according to the report, which was compiled by the Minneapolis Fed.
The report characterized employment growth as “modest on balance,” retail spending as rising “slowly,” and loan demand as “generally stable to modestly higher.”
After raising interest rates four times since December 2015, Fed officials are keen to find evidence that a tight job market is pushing up wages and prices. Weak inflation in recent months has caused some members of the Federal Open Market Committee to waiver on earlier projections they will raise interest rates again before the end of 2017.
Unemployment fell to 4.2% in September, its lowest since February 2001. Despite that, the Fed’s preferred gauge of inflation was just 1.4% in the 12 months through August. Inflation has lagged below the Fed’s 2% target for most of the past five years. —