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Fed Beige Book finds labor and supply shortages are cramping the U.S. economy

The U.S. economy is still growing at a solid pace, a Federal Reserve report said Wednesday, but labor shortages and supply-chain bottlenecks are restraining growth and triggering higher inflation.

The Fed’s Beige Book, a period evaluation of the economy, shed more light on the unprecedented challenges facing the U.S. as it recovers from the pandemic. What’s hurting the economy the most right now are a lack of workers and the inability of companies to obtain badly needed parts and supplies.

“Growth in the regional economy slowed to a modest pace in recent weeks, as supply disruptions and labor shortages have impeded economic activity,” the New York Federal Reserve said.

The latest Beige Book cited labor shortages 26 times compared to just six mentions in January.

Read: ‘My business faces a dire shortage of workers,’ owner says

And the report referred to supply-chain problems 37 times vs. just nine mentions in January and none before the pandemic started in March 2020.

“Fear and uncertainty of the delta variant continued to constrain growth, but contacts were most worried by ongoing labor shortages and supply chain disruptions,” the Philadelphia Federal Reserve said.

While the shortages have constrained economic growth, the report found the economy was still expanding at a steady pace, with most businesses “cautiously optimistic” that conditions will improve in the months ahead.

The latest Beige Book covers the period from September through early October.

The Fed is on the verge of scaling back a massive bond-buying program that kept U.S. interest rates at very low during the pandemic and helped support the economy. An announcement is expected in November.

The labor shortages and supply chain woes began to emerge during the spring after the U.S. economy fully reopened and there was an explosion in pentup demand once Americans were able to get out and about again.

Some economists also blame massive government financial aid and the Fed’s easy-money policy for contributing to an overheated economy and higher inflation.

While these shortages and bottlenecks are expected to ease in the next year, business owners warn the situation could get worse unless Washington acts to address the problems.

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