U.S. economic growth slowed over the summer as a surge in COVID-19 cases driven by the highly contagious delta variant forced consumers to pull back on spending, according to a new Federal Reserve report.
In its region-by-region roundup of anecdotal information known as the Beige Book, the Fed reported that growth overall had “downshifted slightly to a moderate pace” during the July through August period that the report covers.
“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the delta variant,” the Fed said.
Supply chain constraints and labor shortages also weighed on growth in certain sectors, including auto or home sales.
Businesses are also grappling with other pandemic-induced issues, including rising inflation pressures and a shortage of available workers.
Employers continued to have a hard time onboarding new workers, which they said constrained business activity this summer. Contributing to the shortages were increased turnover, early retirements – particularly among health-care workers – child care needs, challenges in negotiating job offers and three federal programs expanding unemployment benefits, which officially ended on Labor Day.
With the persistent and extensive labor shortage, many businesses reported an acceleration in wages, particularly among lower-wage workers. In order to lure people back to work, employers said they offered frequent raises, bonuses, training and flexible work arrangements.
At the same time, price increases continued to “be steady at an elevated pace” as businesses coped with the lack of available workers and disruptions in the supply chain. As a result, some businesses said they anticipate “significant hikes in their selling prices in the months ahead.”
The report, which sums up information collected through Aug. 30, comes as Fed policymakers weigh how – and when – to start unwinding some of the ultra-easy monetary policies put in place 18 months ago without triggering a market sell-off.
At the Federal Open Market Committee’s July meeting, “most” officials agreed it would probably be appropriate to begin reducing asset purchases before the end of the year, according to minutes from the gathering. While a handful indicated that it’s best to wait until 2022, other officials have suggested they want to make a move as soon as next month.
Economists widely expected Fed officials to announce they were tapering its $120 billion monthly purchases of Treasury and mortgage-backed securities in September, but the worse-than-expected August jobs report could delay those plans.
There are three more scheduled Fed policy-setting meetings this year: Sept. 22, Nov. 3 and Dec. 15.