U.S. firms see growing signs of slowdown as inflation persists, Fed survey shows

Author of the article: The U.S. economy expanded at a modest pace in from mid-May through mid-July, a Federal Reserve report showed on Wednesday, as the central bank’s newly-aggressive actions to curb inflation running at a more than 40-year-high continued to have an impact. The Fed released its latest temperature check on the state of…
U.S. firms see growing signs of slowdown as inflation persists, Fed survey shows

Author of the article:

The U.S. economy expanded at a modest pace in from mid-May through mid-July, a Federal Reserve report showed on Wednesday, as the central bank’s newly-aggressive actions to curb inflation running at a more than 40-year-high continued to have an impact.

The Fed released its latest temperature check on the state of the economy as it pushes ahead with a series of interest rate hikes that are aimed at cooling demand but are also stoking concerns of a recession. On that front, there were few signs that inflation looks set to rapidly abate anytime soon as policymakers continue to struggle with getting it under control.

The U.S. Labor Department reported earlier on Wednesday that consumer prices surged 9.1% in June on an annual basis, driven by higher costs for gasoline, food, rent and other items, causing investors to now bet the Fed will raise rates by a full percentage point at its next meeting on July 26-27.

“Several districts reported growing signs of a slowdown in demand, and contacts in five districts noted concerns over an increased risk of a recession,” the Fed said in its survey, known as the “Beige Book,” which was conducted across its 12 districts through July 13.

Fed policymakers keep a keen ear on feedback from business contacts around the country as they parse the economic outlook.

The report also noted that substantial price increases were reported across all districts with “most contacts expect pricing pressures to persist at least through the end of the year.”

The latest survey paints a picture of a discordant economy. Firms are for the most part reporting their pricing power as steady even as most districts said consumer spending moderated as higher food and gas prices dented households’ income.

In the New York Fed’s district, for example, contacts said businesses continued to note widespread escalation in their selling prices with a majority saying they planned further price hikes in the months ahead.

The labor market also remains tight with one third of districts saying employers were considering or had already given workers bonuses to offset high inflation.

At the same time “nearly all districts noted modest improvements in labor availability amid weaker demand for workers, particularly among manufacturing and construction contacts,” the report said.

The Fed raised its benchmark overnight lending rate by three -quarters of a percentage point last month to a target range of between 1.50% and 1.75%, its biggest rate hike since 1994. It is trying to thread the needle on bringing down the rate of price increases close to its 2% goal by restricting economic activity without sparking a sharp rise in unemployment.

Policymakers have been buoyed in that regard by a very tight labor market with job vacancies still outnumbering workers by almost two to one, providing scope, they argue, to bring demand better into balance with supply without job losses.

In the Kansas City district, several contacts said the number and quality of applicants for vacancies had recently picked up. “Some contacts suggested the pickup in applications may be tied, in part, to financial strains arising from price pressures,” the report said.

GROWTH SLOWS, BUT INFLATION NOT SO MUCH

The developing trend toward a slowdown in activity was evident across a number of regions, but was most notable in the New York Fed’s district. “Economic growth slowed to a crawl,” the report said, noting weakening demand from both businesses and households in the face of labor shortages, supply backlogs and a regional increase in COVID-19 cases.

But that was not matched by a similar decrease in pricing pressures with firms in some sectors, such as travel and hospitality, successful in passing on sizable price increases to customers “with little to no pushback.”

Indeed, districts continued to report indications of high – and widespread – inflation. The Boston Fed reported that hotel room rates there had shot up 87% between February and May and the year-over-year price of frozen fish was up 25%, while in the Cleveland Fed’s district “most firms raised prices as they attempted to keep up with rising costs.” (Reporting by Lindsay Dunsmuir and Dan Burns; Editing by Paul Simao and Chizu Nomiyama)

Financial Post Top Stories

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Read More

Total
0
Shares
Leave a Reply

Your email address will not be published.

Related Posts
CNN closes U.S. offices to most workers as COVID-19 cases spike
Read More

CNN closes U.S. offices to most workers as COVID-19 cases spike

Author of the article: CNN is closing its U.S. offices to nonessential employees as COVID-19 cases increase, the network’s chief media correspondent, Brian Stelter, tweeted on Saturday. CNN offices will be closed to all employees who do not have work in the office, Stelter said https://twitter.com/brianstelter/status/1472375749034270729, mentioning an internal memo. “We are doing this out…
Russian gas flows east via Yamal-Europe pipeline for fifth day
Read More

Russian gas flows east via Yamal-Europe pipeline for fifth day

Author of the article: MOSCOW — The Yamal-Europe pipeline that usually sends Russian gas to Western Europe was operating in a reverse mode for a fifth day on Saturday, shipping fuel from Germany to Poland, data from German network operator Gascade showed. Russian gas exporter Gazprom did not book gas transit capacity for exports via…
Commodity Markets Are Contending With a Growing Liquidity Crisis
Read More

Commodity Markets Are Contending With a Growing Liquidity Crisis

(Bloomberg) -- Commodity markets are struggling to shake their months-long liquidity crisis that’s brought an era of erratic swings in the value of the world’s raw materials. Author of the article: Bloomberg News Alex Longley and Yongchang Chin 65o25wfv2t0broit2zp9vt()_media_dl_1.png Bloomberg RSS (Bloomberg) — Commodity markets are struggling to shake their months-long liquidity crisis that’s brought…