REPEAT: Fed's Beige Book: Positive Outlook Despite Hurricane

Repeats Story Initially Transmitted at 18:00 GMT Oct 18/14:00 EST Oct 18

--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