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--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
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
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: