By Lindsay Dunsmuir and Ann Saphir
(Reuters) – The U.S. economy expanded at a modest-to-moderate pace in October and the first half of November while firms grappled with rising inflation and a scramble to fill jobs amid labor shortages, a survey conducted by the Federal Reserve showed on Wednesday.
“Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy. There were wide-ranging input cost increases stemming from strong demand for raw materials, logistical challenges, and labor market tightness,” the U.S. central bank said in its latest “Beige Book” report of the economy, which is compiled from anecdotal evidence derived from business contacts nationwide.
The persistence of stubbornly high inflation has already forced the Fed to act to rein it in.
On Tuesday, Fed Chair Jerome Powell told the U.S. Senate Banking Committee that the central bank will consider speeding up the end of its bond-buying program a few months earlier than anticipated on the back of a broadening of price pressures, accelerating economic growth, and strong job gains that have not been matched by an increase in labor supply.
The Fed began reducing its purchases of Treasuries and mortgage-backed securities, introduced to help nurse the economy through the COVID-19 pandemic, earlier this month and was set to taper the $120 billion monthly program completely by next June.
Fed policymakers will weigh a faster timeline at their next meeting on Dec. 14-15 as the central bank seeks to curb its monetary stimulus and lay the stage for a possible liftoff in interest rates next year earlier than anticipated.
Inflation continues to run at more than twice the Fed’s flexible target of 2% annually, and Powell acknowledged in his Senate testimony that it is not expected to ease until the second half of next year.
INCENTIVES FOR WORKERS
Many of the Fed’s 12 districts also reported that businesses were having difficulties filling job openings, leading to a rise in salaries.
Nearly all Fed districts reported robust wage growth. “Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements,” the report said.
The U.S. unemployment rate currently stands at 4.6% and policymakers increasingly believe that, although there are 3 million fewer people in the labor force than before the COVID-19 pandemic, not all of the shortfall will be made up due to an increase in retirements over the past two years.
Wage inflation shows few signs of abating, with employers in almost every industry competing to lure workers, who have been quitting at record levels. A high quits rate is seen as a sign of confidence as workers leave when they are more secure in their ability to find a new job.
Elsewhere, the Fed said consumer spending rose modestly and that the outlook for overall activity remained positive in most districts, but some noted uncertainty about when supply chain and labor shortages would ease.
(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)
