US economy strong but ‘hindered’ by bottlenecks, Fed survey shows
Summer driving, tight supply gasses fuel prices at the pump Further increases in input costs, selling prices expected in coming months
WASHINGTON, July 17, (AP): The Federal Reserve’s latest nationwide business survey found that the economy strengthened further in late May and early June, despite supply-chain bottlenecks that led to price hikes.
The Fed said that seven of its 12 regional bank districts reported strong price increases with some businesses expressing concerns that the supply chain disruptions would push prices even higher.
The US economy is rebounding strongly from the recession brought on by the coronavirus pandemic. That has led to a surge in people seeking everything from new cars to hotel stays, leaving businesses struggling to find enough components and employees to meet the demand.
“While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months,” the Fed said in its latest beige book report, based on interviews with its business contacts around the country.
The report said that business sectors dealing with transportation, travel and tourism, and manufacturing all experienced above-average economic growth in the period.
But the survey also found that the supply-chain disruptions led to shortages of materials and labor, along with low inventories and constrained sales of many consumer goods.
“A report like this would have roiled markets several decades ago,” said Robert Brusca, an economist with FAO Economics. “There are lots of shortages and prices rising and input costs going up and labor in short supply.”
The Fed survey was based on interviews by the Fed’s 12 regional banks with business contacts in their regions. It will form the basis for discussions on the economy when central bank officials next meet on July 27-28.
The expectation is that after that meeting the central bank will keep interest unchanged near a record low of zero percent as a way to bolster the economy as it rebounds from last year’s pandemic recession.
The survey found that three-fourths of the Fed’s districts reported either slight or modest job gains with demand strongest for low-skilled workers, with labor shortages often cited as the reason that firms could not fill their vacancies.
“All districts noted an increased use of non-wage cash incentives to attract and
retain workers,” the Fed said with many businesses expecting the difficulty in finding workers to extend into the early fall.
Federal Reserve Chairman Jerome Powell delivered the Fed’s twice-a-year monetary report to Congress on Wednesday. In his testimony, Powell suggested that inflation, which has been
surging as the economy strengthens, will remain elevated in coming months but will then moderate.
Powell was upbeat in his views on the economy, saying growth is on track “to post its fastest rate of increase in decades” but that there was still a long way to go before the labor market is fully healed.
WASHINGTON, July 17, (AP): The economic recovery is pumping up gas prices.
Drivers are facing pricier fill-ups as more people hit the road for work, travel and other activities that the virus pandemic halted. Higher demand for gasoline is running up against lagging supply as the energy industry slowly ramps up after more than a year of production and staff cuts.
The prices are especially painful for drivers who just a year ago saw gas fall to its lowest point since 2016, but who couldn’t take advantage because the virus pandemic limited travel.
The supply and demand disconnect is exacerbated by a busier summer travel season as COVID-19 cases fall, vaccination rates rise and the tourism industry recovers. The Energy Information Administration estimated that gas demand for the week ending July 2, which included only one day of the Independence Day holiday weekend, was the highest in 30 years.
“The reason we’re here is because of imbalances created by COVID-19,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Less driving during the pandemic caused demand for gas to plunge and that forced the fuel industry’s hand to cut production and lay off employees.”
The national gas price average has increased 40% since the start of the year, according to AAA, and drivers can expect the price to keep rising. The auto club expects the national average to rise above $3.25 this summer.
The actual cost of gas isn’t near a historic high, De Haan said, but the quick rise in prices not long after last year’s sharp dip is making it feel more painful.
“Obviously the $3 threshold is what makes it fell particularly worse,” De Haan said.
A large part of the production imbalance stems from the OPEC cartel’s resistance to increasing production to meet rising demand. Talks among OPEC members and allied oil producing countries broke off earlier this month in a standoff with the United Arab Emirates over production levels.
Currently, OPEC and allied countries are producing some 37 million barrels a day, compared to around 43 million barrels per day in April of last year, at the start of the pandemic. The low supply, high demand situation has pushed crude oil prices up more than 50% in 2021 to levels not seen since late in 2018.
“Lots of energy companies paused development as bond holders demanded discipline and you’re not seeing a supply reaction,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management.
Analysts have said high oil and gas prices will probably remain this year as the economic recovery levels off and energy companies find their footing again with production and staffing levels.