Fed survey finds economy growing modestly despite COVID

The Federal Reserve says the economy was growing at a modest pace at the end of 2021 but was still being held back by ongoing supply-chain disruptions and labor shortages

Federal Reserve-Beige Book (2022 Brendan Smialowski)

The Federal Reserve said Wednesday that the economy was growing at a modest pace at the end of 2021 but was still being held back by ongoing supply-chain disruptions and labor shortages.

In its latest survey of business conditions around the country, the Fed said its 12 regional banks found that the economy was continuing to grow. But many regions reported a sudden pullback in spending on leisure travel, hotels and restaurants because of the rapid spread of the omicron variant of the coronavirus.

“Although optimism remained high generally, several districts cited reports from businesses that expectations for growth over the next several months cooled somewhat during the last few weeks” of 2021, a period when COVID cases were rising sharply.

Of the Fed's 12 districts, only one, Dallas reported “robust” growth in the closing weeks of 2021. But even in that district, Fed officials noted that “uncertainty increased amid a new surge in COVID-19 cases and concern that labor and supply-chain shortages will persist well into 2020.”

At the opposite extreme, the Fed's New York district reported an economy growing at only a subdued pace, held back by “intensifying supply disruptions, labor shortages and the omicron outbreak.”

The other 10 Fed districts generally reported modest to moderate growth with many citing threats posed by the rise in COVID cases.

Kathy Bostjancic, senior economist at Oxford Economics said that the beige book showed “companies cited strong demand for workers but great difficulty in finding available labor.”

She said this severe tightness in the labor market was driving robust wage growth nationwide and, while pay increases were strongest for low-skill workers, wage gains were starting to spread to higher-skill levels.

The Fed survey found that some districts were reporting that price increases were starting to decelerate somewhat but many business contacts still reported high costs associated with ongoing supply chain disruptions.

The Fed survey, known as the beige book, will form the basis for discussions when the central bank holds its next meeting on Jan. 25-26.

In testimony Tuesday at his confirmation hearing for a new four-year term leading the central bank, Fed Chair Jerome Powell warned that high inflation could make it harder to restore the job market to full health.

At the Fed's last meeting in December, Powell said the central bank was accelerating its efforts to tighten credit, with the goal of restraining inflation before surging prices became entrenched. His comments came as U.S. households are under pressure from rising prices for food, gas, rent and many other items.

The government reported Wednesday that consumer prices rose 7% over the past 12 months, the fastest pace since 1982.