Beige Book Reports Slower Economic Growth

Economic growth downshifted slightly to a moderate pace in early July through August, said the Federal Reserve in its latest “Beige Book,” Wednesday.

The stronger sectors of the economy included manufacturing, transportation, nonfinancial services and residential real estate.  But the overall deceleration in economic activity largely was attributable to a pullback in dining out, travel and tourism, reflecting safety concerns tied to the rise of the Delta variant of COVID-19 and, in a few cases, international travel restrictions.




Other sectors of the economy where growth slowed or activity declined were those constrained by supply disruptions and labor shortages, as opposed to softening demand.  In particular, weakness in auto sales and a prolonged microchip shortage was mentioned.  Restrained home sales was attributed to low supply.

Growth in non-auto retail sales slowed, rising at a modest pace, on balance, across the nation.  Residential construction was up slightly, and nonresidential construction picked up modestly.

Trends in loan volumes varied widely, ranging from down modestly to up strongly.

Reports on the agriculture and energy sectors were mixed but, on balance, were positive.

Looking ahead, businesses in most districts remained optimistic about near-term prospects, though widespread concern about ongoing supply disruptions and resource shortages continued.




All districts continued to report rising employment, although growth ranged from slight to strong.  Demand for employees continued to strengthen, but all districts noted extensive labor shortages that often were impeding business activity.

Contributing to these shortages were increased turnover, early retirements (especially in health care), childcare needs, challenges in negotiating job offers and enhanced unemployment benefits.  Some district directors noted that return-to-work schedules were pushed back by the increase in the Delta variant.

With persistent and extensive labor shortages, some districts reported an acceleration in wages, and most characterized wage growth as strong—including all of the midwestern and western regions.  Some districts reported particularly brisk wage gains among lower-wage jobs.  Employers also were reported to be offering more frequent raises, bonuses, training and flexible work arrangements.




Inflation was reported to be steady at an elevated pace, as half of the districts characterized the pace of price increases as strong, while half described it as moderate.  With pervasive resource shortages, input price pressures continued to be widespread.

Most districts reported substantial escalation in the cost of metals and metal-based products, freight and transportation services, and construction materials, with the notable exception of lumber whose cost has retreated from exceptionally high levels.

Even at greatly increased prices, many businesses reported having trouble sourcing key inputs.




The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $122.43 to $127.40 per cwt, compared with last week’s weekly range of $126.96 to $127.03.  FOB dressed steers and heifers went for $192.44 to $202.64 per cwt, versus $200.18 to $201.30.

The USDA choice cutout Wednesday was down $0.33 per cwt at $334.86, while select was down $3.73 at $298.17.  The choice/select spread widened to $36.69 from $33.29 with 94 loads of fabricated product and 37 loads of trimmings and grinds sold into the spot market.

The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.75 to $1.95 a bushel over the Sep futures and for southwest Kansas were unchanged at $0.40 over Sep, which settled at $4.98 1/4 a bushel, up $0.02 1/2.

The CME Feeder Cattle Index for the seven days ended Tuesday was $157.47 per cwt up $0.10.  This compares with Wednesday’s Sep contract settlement of $156.05 per cwt, down $0.22.