Fed's Beige Book: Positive Outlook Despite Hurricane Disruptions >

--Significant Impact From Harvey, Irma in 3 Districts

--Input Costs Rising; Pass-Through To Selling Prices Still 'Limited'

--Labor Markets Tight; Wage Pressures Rising in Particular Industries

By Jean Yung     

     WASHINGTON (MNI) - A destructive hurricane season caused 

significant disruptions along the Gulf Coast and the southeastern United 

States but businesses remained optimistic about growth over the medium 

term, the latest Federal Reserve Beige Book survey showed Wednesday. 

     Despite "major disruptions" from Hurricanes Harvey and Irma in the 

Richmond, Atlanta and Dallas districts, contacts from all 12 Fed banks 

reported modest or moderate economic growth in September and early 

October, same as the previous period, the Beige Book said. 

     Most businesses in the affected districts said they did not expect 

a significant long-term impact but that labor shortages in already-tight 

job markets may become more acute as the recovery effort continues. 

     The survey -- which informs the Federal Open Market Committee at 

its Oct. 31-Nov. 1 meeting -- was conducted by the Minneapolis Fed 

before Oct. 6. 

     With all districts reporting favorable growth conditions, the 

survey signals the economy remains on a path of expansion in line with 

expectations among Fed policymakers. Many officials have said it would 

be appropriate to raise the fed funds rate once more before the end of 

the year barring any negative economic shocks, and market expectations 

are centering on the December FOMC meeting as the likely venue for the 

move. 

     Manufacturing activity continued to grow in most districts along 

with nonfinancial services, the survey said. Retail spending rose slowly 

while auto sales and tourism increased. Both commercial and residential 

real estate construction rose and loan demand was stable to modestly 

higher. 

     However, price pressures "remained modest" since the previous 

report with several districts noting increased manufacturing input costs 

"weren't passed through to selling prices."

     The hurricanes lifted some prices more rapidly, particularly in the 

transportation, energy and construction materials sectors, the survey 

said. Supply-chain disruptions drove some raw material prices higher in 

the Richmond district while construction businesses in the Atlanta Fed 

district said they expected already-rising costs to increase 

significantly due to rebuilding efforts. 

     Policymakers have said they expect the storms to drive inflation 

higher but that the effect would be temporary. The lack of broader 

pricing pressures are of bigger concern for them as they weigh a third 

rate hike this year. 

     The survey noted "widespread labor tightness" but that the majority 

of district reported "only modest to moderate wage pressures." However, 

there were signs of stronger pressures in certain sectors such as 

transportation and constructions, as well as reports of a growing use of 

nonwage compensation such as sign-on bonuses and overtime to attract and 

retain workers, the survey said.  

     A chamber of commerce executive in the Cleveland Fed district said 

firms are incentivizing workers with bonuses and higher wages in order 

to avoid turnover, which has resulted in the narrowing the gap between 

low- and middle-wage workers, the survey said. 

     Businesses continued to cite difficulty in filling positions at a 

range of skill levels. Growing demand for transportation services was 

pushing up wages for truckers even as companies struggled to find 

drivers, several Fed districts reported. 

     In the San Francisco district, labor shortages and increased unit 

labor costs in the agriculture sector "fueled investments in automated 

technology," the regional Fed bank reported. Technological gains and 

favorable tax conditions also spurred investment in entertainment 

services while investments in cloud computing and data analytics boosted 

sales at large technology companies in the district. 

     Districts hit hard by the hurricanes reported concern over 

skilled-worker shortages and increases in labor costs in the aftermath 

of the storms. In the Dallas district, where the manufacturing sector 

reported robust expansion, some firms said difficulty finding workers 

was impeding their growth. 

--MNI Washington Bureau, +1 202-371-2121; email: 

jean.yung@marketnews.com-- 

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