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PNC Chief Economist Gus Faucher: Slower But Still Moderate Growth in Latest Beige Book

pncfsg Croppedfrom Delta Variant, Supply Chain Problems

  • Growth was somewhat slower in July and August according to the latest Beige Book, although still moderate.

  • The Delta variant and supply problems were constraints on economic activity.

  • Demand for labor increased, but worker shortages were a significant problem. Wage pressures were building.

  • Inflation remained elevated, with businesses looking to pass along higher input costs.

U.S. economic growth “downshifted” somewhat in the latest Beige Book from the Federal Reserve but remained “moderate.” The Beige Book covered conditions from early July through August.

Much of the slowing came from sectors exposed to the Delta variant, including restaurants and travel and tourism, including international tourism. Supply chain problems and labor shortages also weighed on some industries, especially auto manufacturing, despite strong demand. Sources of strength included manufacturing, transportation, nonfinancial services, and housing. Nonresidential construction improved “modestly.” Loan growth was variable, up strongly in some districts and down in others.

The agricultural and energy sectors were mixed over the summer.

Employment increased across the country in July and August, although the pace varied “from slight to strong.” Demand for workers improved, but labor shortages were a problem in all twelve districts. Worker shortages constrained output in many industries and locations. Increased turnover; early retirement, especially in healthcare; childcare difficulties; and expanded unemployment insurance benefits all contributed to labor shortages. Wage growth was “strong” in most districts, including all of those in the Midwest and West. Wage gains were “brisk” for low-wage workers in many parts of the country.

Inflation did not accelerate over the period but did remain at its recent faster pace. Price gains were “strong” in half of the districts and “moderate” in the other half. Costs were higher for metals and related products, transportation, and construction materials, although lumber prices were down from their peaks earlier in the year. Even with higher prices businesses were having difficulty in obtaining some inputs. Some businesses reported an increased ability to pass higher costs along to their customers. And business in several districts expected to implement “significant” price increases in the near term.

Reported growth was moderate in most districts but was “moderate to strong” in the Boston district and “solid” in the Cleveland and Dallas districts.

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The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

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