The US economy ‘downshifted slightly’ last month as the delta variant of the coronavirus dented demand for tourism and travel as well as people’s appetite to eat out, according to the latest release of the Fed's Beige Book. However, overall, ‘the economy remained on an upward trajectory, with rising prices and labour shortages’.
‘The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions’ the Fed reported.
The labour shortage is also a problem across all districts, due to ‘increased turnover, early retirements, childcare needs, challenges in negotiating job offers, and enhanced unemployment benefits. Some Districts also stated that schedules for returning to work were being pushed back due to the increase in the Delta variant. The Atlanta Fed noted that there were so many vacancies that restaurants were beset by ‘ghosting coasting’, where an employee will take a job for a few days, then quit without notice and move on to the next restaurant.
With regards to inflation, the report said it was ‘steady at an elevated pace’, with most districts agreeing inflation was either moderate or strong, with construction materials, transportation, and industrial staples pushing prices higher.
We also had a couple of Fed officials outlined their thoughts on tapering asset purchases going forward. New York President John Williams’s views were not dissimilar to Powell’s speech at Jackson Hole, i.e., on the dovish side. Williams said ‘I think it's clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year’.
However, on the other side of the coin, in an interview with Financial Times, St. Louis Fed president James Bullard reiterated his stance “The big picture is that the taper will get going this year and will end sometime by the first half of next year”. He also attributed the weakness in the latest employment report to labour supply issues (as mentioned in the Beige Book) and stated that ’There is plenty of demand for workers and there are more job openings than there are unemployed workers. If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we'll have a very strong labour market going into next year’.
Have a great day.