A new Federal Reserve report paints a picture of U.S. businesses continuing to be affected by high inflation and worker shortages, with little prospect for an easing of price pressures in the near future, as rising input costs have been noted across a range of industries in recent weeks.
Consumer spending, which accounts for about two-thirds of U.S. economic output, was "generally weaker" compared to the prior reporting period, with a COVID-19 surge being partly to blame.
Many of the Fed's 12 districts reported temporary business activity disruptions, as a spike in infections during the reporting period led to weaker consumer demand and higher worker absenteeism. Another factor behind softer business activity cited in the report was severe weather.
While there was some weakening in financial conditions, loan demand remained largely unchanged, with "generally strong" demand for residential real estate, although home sales remained flat because of low inventories.
JobsSome districts reported "scattered signs" of labor supply improvement, but overall, businesses were squeezed by worker shortages.
"Widespread strong demand for workers remained hampered by equally widespread reports of worker scarcity," the report reads.
Worker absenteeism associated with January's COVID-19 wave and high turnover, in general, led many businesses to report difficulty in maintaining staffing levels. In order to attract and retain workers, many firms boosted compensation and introduced flexible working arrangements.
InflationBusinesses across the country reported passing along their higher input costs to customers at a "robust" pace.
The main factor behind the acceleration in selling prices was higher business input costs, particularly in transport.
Shortages of materials and labor cost increases also played a role in pushing up input costs.
Firms reported an "increased ability" to pass on higher input costs to consumers in the form of higher selling prices, with demand remaining strong despite steeper price tags. Expectations are that price pressures will stay elevated going forward.
"Firms reported they expect additional price increases over the next several months as they continue to pass on input cost increases," the report reads.
The report's findings dovetail with congressional testimony by Federal Reserve Chair Jerome Powell, who described the labor market as "extremely" tight, the labor supply as "subdued," and inflation as running "well above" target.
While Powell noted higher uncertainty in markets because of Russia's invasion of Ukraine, he confirmed that Fed policymakers are on track to raise interest rates at their next meeting in two weeks.
"Even as COVID cases fade, inflation continues to undermine consumer sentiment, spending power, and savings," Bankrate Senior Economic Analyst Mark Hamrick told The Epoch Times in an emailed statement. "That’s why the Federal Reserve is focused on the stable prices portion of its dual mandate, which translates to tighter monetary policy including higher interest rates."