Job gains strong, prices rising as U.S. recovery continues
A strengthening U.S. economy was spinning off broad-based job gains through early July that were particularly strong for lower-skilled occupations, the Federal Reserve reported Wednesday in its latest Beige Book compendium of reports about the economy.
But prices were also strong, rising “at an above-average pace,” the Fed said, with its business contacts apparently uncertain that higher inflation would fade soon.
“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 reported in its Beige Book report of anecdotes on economic conditions across the 12 regional reserve banks’ districts.
The report was released as Fed Chair Jerome Powell was in the middle of the first of two days of semi-annual congressional testimony on the economy and monetary policy.
Powell pledged to keep the Fed’s “powerful support” in place to complete the rebound from the coronavirus pandemic, but was peppered with pointed questions about the current hot streak of inflation.
Overall, the U.S. economy in the period from late May through early July was described in the Beige Book as displaying “moderate to robust growth,” marking the report’s strongest overall characterization of the national economy since early 2018.
“The outlook for demand improved further, but many contacts expressed uncertainty or pessimism over the easing of supply constraints,” the report said.
All 12 districts reported employment gains, with a quarter of them characterizing the improvement in the labor market as “moderate or strong.”
Wage growth was also widespread, with low-wage workers in particular seeing above-average pay increases as companies scramble to fill a record number of vacant jobs, and references to other perks such as bonuses were abundant across districts. But a number of employers reported the draw of higher pay was not bringing in job seekers.
“One Kentucky restaurant reported offering a starting wage of $16 per hour and receiving no applicants,” according to a report from the St. Louis Federal Reserve, whose president – James Bullard – is among the more hawkish policymakers.
Bullard, one of seven Fed officials to see interest rates needing to rise next year, has posited that the coronavirus pandemic and other factors – such as a booming stock market – may have changed the dynamics of labor supply, with some workers choosing to retire, for instance, rather than go back to work.
The Beige Book is produced eight times a year, published two weeks ahead of the conclusion of each meeting of the Federal Open Market Committee, the central bank’s policy-setting panel. The latest report was compiled by the Federal Reserve Bank of Boston based on information collected by July 2.
The FOMC next meets on July 27-28 and is expected to continue the debate joined at its June meeting over how much longer to keep its extraordinary support measures for the economy in place in the face of higher-than-expected inflation.