By Greg Robb
The outlook: While the economy was growing at a moderate pace in November, businesses were raising prices at a rapid clip across a broad swath of the economy , according to the Fed’s latest Beige Book survey released Wednesday.
“Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy,” the survey found.
Input costs increases were “wide-ranging” due to strong demand for raw materials, logistical challenges and labor market tightness, the report said.
Tight labor markets meant wages were also rising at a “robust” pace across most of the Fed’s 12 districts, according to the report.
One silver lining was that some inputs were becoming more widely available, easing some of the pressure.
“Strong demand generally allowed firms to raise prices with little pushback, though contractual obligations held back some firms from increasing prices,” the report concluded.
Beneath the surface: Growth in October and November was held down by supply chain disruptions and labor shortages, the Fed said. Low inventories also held down sales, especially cars. Construction activity was hamstrung by scarce materials and labor. Manufacturing was a bright spot — described in the report as “solid.” Agriculture was another strong sector.
Big picture: Fed Chairman Jerome Powell has sounded a hawkish note in two days of testimony on Capitol Hill, perhaps after reading a draft of this Beige Book report. Powell opened the door to ending the Fed’s asset purchases a few months sooner than planned.
“The Fed is making a clear policy pivot to a focus on inflation,” said Tim Duy, chief U.S. economist at SGH Macro Advisors.
Odds and ends: In the San Francisco district, contacts reported passing on increased wage and other input costs to consumers. In one case, a contact in business consulting mentioned rate increases beyond 30% for services that required consultants to travel and work from clients’ premises.
The Dallas district said there was optimism in the oilfields but lead times as long as 10 months for some equipment.
In the Kansas City district, farm real estate values increased sharply from a year ago.
In Minneapolis, there was a general sense of optimism among minority- and women-owned businesses.
Market reaction: Stocks (DOW:DJIA) (S&P:SPX) were slightly higher on Tuesday as markets struggled to digest what the Fed’s pivot meant for asset prices.