The Fed’s latest “Beige Book” collection of anecdotes about the state of the economy from businesses, labor groups and others across the central bank’s 12 regions nationwide also signaled that the fast-spreading Omicron variant of COVID-19 was exacerbating conditions on several fronts as 2022 approached.
Omicron, which drew 44 references in the report, was seen adding to existing challenges around hiring and inflation, in particular, and was a set back for a travel and leisure sector that had only just begun to get back on its feet around the middle of last year.
Employment grew “modestly” and most districts said demand for workers remains strong, with some businesses struggling to retain employees. One manufacturer in the Dallas Fed district, for example, reported extreme turnover among new hires, “saying three to five hires were needed for even one to stay on.”
“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,” the report said.
THE FED SHIFTS GEARS
With inflation now persistently running at more than twice its flexible 2% annual target, the Fed is already taking measures to rein it in. It has signaled that the era of ultra-easy monetary policy, in place since the onset of the coronavirus pandemic, is effectively over even as the Omicron variant spurs a record wave of infections across the country and around the world.
On Tuesday, Fed Chair Jerome Powell told the U.S. Senate Banking Committee during his confirmation hearing for a second term as central bank chief that the economy should weather the current COVID-19 surge with only “short-lived” impacts and was ready for the start of tighter monetary policy.
The Fed began reducing its monthly purchases of Treasuries and mortgage-backed securities, introduced to help nurse the economy through the COVID-19 pandemic, in November. It is now set to taper that program completely by mid-March, clearing the way for it to begin hiking interest rates at its March 15-16 policy meeting.
Data from the U.S. Labor Department earlier on Wednesday showed prices at the consumer level rising by 7% on a year-over-year basis in December, the fastest pace of increase since 1982, although officials and private economists see it near the cresting point.
OMICRON HEADWINDS
While the report’s headline characterization of the economy seeing “modest” growth was a slight downgrade from the “modest to moderate” description applied in the two preceding reports, the tone throughout the report still was more upbeat than down. Conditions were described as “positive” at twice the rate of “negative,” and “improvement” or “improved” appeared about seven times more than “deteriorated.”
That said, Omicron’s arrival late last year was a clear restraint, perhaps most notably in the leisure and hospitality sector. In the report, contacts nationwide noted “a sharp pull back in leisure travel, hotel occupancy and patronage at restaurants as the number of new coronavirus cases rose in recent weeks.”
More broadly it upended daily operations for all manner of businesses as greater numbers of workers fell sick or had to isolate after contact with someone who was infected.
For instance, Omicron “contributed to labor shortages and sparked some concern about the short-term outlook in the hospitality, transportation, and retail sectors,” the St. Louis Fed reported.
Meanwhile, the Atlanta Fed said: “In late December, some employers noted an uptick in absenteeism related to Omicron which resulted in curtailed operations.”
And, while for manufacturers in the Kansas City Fed’s district COVID was “not a top concern for most businesses…most contacts said they would see some disruption” from the virus, it said.
Disruptions aside, though, businesses reported ending the year with strong sales and profits.
In the Philadelphia district, the report said that in that region “overall many firms, especially larger ones, noted strong profits – “the best year ever” for some.”
(Writing by Dan Burns; Editing by Paul Simao and Chizu Nomiyama)
Comments
Post a Comment