The U.S. economy grew at a “moderate to moderate” rate in September and early October, as prices stayed elevated, according to the Fed’s beige book released on Wednesday afternoon.
Beige book is a survey of the business conditions across the U.S. compiled by the 12 Federal District Banks, published eight times a year. The publication is an essential source of information on economic growth, employment, and prices, discussed in FOMC meetings as it deliberates the nation’s monetary policy direction.
FOMC meetings are set five weeks apart, with the next meeting scheduled for November 2-3, where the committee members will have to determine, once again, how far or how close the economy is to the Fed’s dual mandate of maximum employment and stable prices.
While this task has always been tricky, it has become more tricky in recent meetings, as the performance of the U.S. economy has been distorted by supply chain bottlenecks and labor market frictions, which make it hard for its members to set monetary policy priorities.
For instance, the Fed sees slack in the labor market when firms have a hard time finding workers to do the job. Meanwhile, the FOMC has difficulty figuring out whether inflation is a transitory or a permanent problem for the U.S. economy.
Unfortunately, the new beige book release doesn’t seem to shed enough light to clear up the picture of the U.S. economy.
Here’s a quote from the beige book on economic growth:
“Economic activity grew at a modest to moderate rate, according to the majority of Federal Reserve Districts. Several Districts noted, however, that the pace of growth slowed this period, constrained by supply chain disruptions, labor shortages, and uncertainty around the Delta variant of COVID-19.”
Uneven Growth
While economic growth was modest and moderate, it was uneven across sectors. The auto sector, for instance, continues to experience declines due to inventory problems.
Likewise, the travel industry displayed a mixed performance across districts, while manufacturing continued to thrive in most parts of the country.
Meanwhile, prices remained significantly elevated due to supply bottlenecks.
Here’s another quote from the beige book: “Most Districts reported significantly elevated prices, fueled by rising demand for goods and raw materials. Reports of input cost increases were widespread across industry sectors, driven by product scarcity resulting from supply chain bottlenecks. Price pressures also arose from increased transportation and labor constraints as well as commodity shortages.
“As a result, prices of steel, electronic components, and freight costs rose markedly this period.”
Higher prices for raw materials prompted firms to raise their prices, passing on the higher costs of these materials to consumers, with the situation looking mixed for the next 12 months.
“Expectations for future price growth varied with some expecting price to remain high or increase further while others expected prices to moderate over the next 12 months,” added the beige book.
Bottom Line
The suspense on the state of the economy goes on.
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