WASHINGTON: The US economy continues to expand and is now seeing tight labor markets and rising price pressures, as businesses nationwide have an upbeat outlook for 2017, the Federal Reserve said Wednesday.
“Firms across the country and industries were said to be optimistic about growth in 2017,” the Fed’s Beige Book survey of the economy said.
That could be an indication companies are expecting tax cuts and increased spending from the incoming administration of President-elect Donald Trump, who takes office Friday.
Most of the 12 Fed districts reported tighter labor markets, including increasing wages or trouble filling open positions, while price pressures have “intensified” since the last survey in November.
Improvement in hiring and wages is generally good news in what has been a sluggish recovery since the 2008 financial crisis, but it also could fuel inflation pressures which would prompt the US central bank to respond with more interest rate increases, following December’s move, only the second in a decade.
The so-called Beige Book report collects views of economists, business contacts and others in the 12 Federal Reserve districts in preparation for the monetary policy meeting January 31 to February 1.
Fed policymakers have indicated they expect three rate hikes this year, rather than two, given expected inflationary pressures and the possibility of increased stimulus spending by the Trump administration, although much uncertainty remains about the specifics of those policies.
Wage pressures growing
“Employment growth ranged from slight to moderate and most districts indicated that wages increased modestly,” the report said, in contrast to the November report when the improvement in jobs was not as widespread.
Contacts in many districts said they “expect labor markets to continue to tighten in 2017, with wage pressures likely to rise and the pace of hiring to hold steady or increase.”
And in another contrast to previous surveys, when prices underwent only slight increases at best, the latest report said price pressures “intensified somewhat since the last report.” However, retailers say they have struggled to increase prices due to competition.
Only one district, Atlanta, reported flat rather than rising prices.
There also was good news in manufacturing, as companies in most districts “reported increased sales with several citing a turnaround versus earlier in 2016.”
Seven districts highlighted improvements in manufacturing as a source of growth since November, including Kansas City, where output, shipments and new orders in the sector “grew at their fastest pace in over two years,” and Philadelphia, where manufacturing was one sector that “provided the boost from the prior period of slight growth.”
That too is an improvement from the last report when manufacturing was described as mixed, and the strong US dollar was containing demand.
Meanwhile, retail sales expanded, but several districts noted disappointing holiday sales. Reports in the energy industry were mixed, but Dallas and Kansas City cited notable improvements.