Aug 22, 2017 Last Updated 01:25 AM EDT

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Jump in manufacturing, tight labor markets show U.S. economic health: Fed

Jan 18, 2017 05:15 PM EST

A security guard walks in front of an image of the Federal Reserve in Washington, DC, U.S.
(Photo : REUTERS/Kevin Lamarque/File Photo) A security guard walks in front of an image of the Federal Reserve in Washington, DC, U.S.

A pickup in manufacturing, "widespread" reports of labor shortages and improving business investment set the stage for the Federal Reserve's December rate hike amid signs of steady economic growth across the country, the Fed reported Wednesday in its latest Beige Book compendium of economic conditions.

Manufacturers in "most" of the Federal Reserve System's 12 regions reported increased sales, the Fed reported in the document, a collection of anecdotal information from businesses assembled before each Fed meeting.

Fed officials said companies in their districts acknowledged the uncertainty surrounding the change of administrations in Washington, with a healthcare firm in the Boston region expecting "a possible headwind" from the battle over Obamacare.

Others worried about the potential fallout from trade tensions.

But in general, across industries "firms...were said to be optimistic about growth in 2017," while also reporting that it was becoming increasingly difficult to fill vacant positions. That issue is likely to intensify.

"Labor markets were reported to be tight or tightening...District reports cited widespread difficulties in finding workers for skilled positions," the Fed reported. "Many districts...expect labor markets to continue to tighten in 2017, with wage pressures likely to rise and the pace of hiring to hold steady or increase."

Across the country "pricing pressures intensified somewhat," the Fed wrote.

U.S. central bankers raised interest rates in December, setting their target rate at a range of between 0.5 and 0.75 percent. It was the only increase in 2016, but came as Fed officials began adjusting to the possibility that they may have to raise rates faster if the incoming administration of President-elect Donald Trump follows through on plans to cut taxes and spend additional tens of billions of dollars on infrastructure.

While the Beige Book is not a systematic survey, it does reflect each Fed district's sense of the regional economy.

And as of the end of 2016, they portrayed an economy that seemed increasingly healthy. One manufacturer in Chicago noted that because workers could not be found who were qualified to run its most sophisticated machines, they were instead using "less sophisticated equipment that was easier to operate."

Businesses in that district, including several of the heartland states where economic anxiety fueled Trump's victory, said they expected capital investment to grow over the next year.

Several other districts said manufacturing was up, while in the Kansas district "manufacturing production, shipments and new orders grew at their fastest pace in over two years."

In Dallas, the recently beleaguered energy sector "noted improved demand and an uptick in employment, following depressed activity for nearly two years." Reuters

 

 

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