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Fed: Economy Faces Drags      10/21 06:54


   WASHINGTON (AP) -- The Federal Reserve reports that the economy faced a 
number of headwinds at the start of this month, ranging from supply-chain 
disruptions and labor shortages to uncertainty about the delta variant of COVID.

   In its latest survey of business conditions around the nation, the Fed said 
Wednesday that a majority of its 12 regions viewed consumer spending, the main 
driving force for the economy, as remaining positive despite the various speed 

   The report noted wide differences in performance, however. It noted that 
auto sales suffered because of constrained inventories due to problems 
obtaining critical semiconductor components. Manufacturing, meanwhile, was 
growing either moderately or robustly depending on which Fed district was 

   "Outlook for near-term economic activity remained positive, overall, but 
some districts noted increased uncertainty and more cautious optimism than in 
previous months," the Fed said in the report on business conditions nationwide, 
known as the beige book.

   The report, based on surveys of business contacts by the Fed's 12 regional 
banks, will form the basis for discussion when central bank officials next meet 
on Nov. 2-3.

   The Fed is widely expected to announce at that meeting that it will begin to 
reduce, or taper, its $120 billion in monthly bond purchases starting either in 
November or December.

   Those purchases have been designed to give the economy an extra boost by 
holding down long-term interest rates.

   A move to trim the purchases is expected to be followed in the second half 
of next year with the first rate hikes. The Fed's benchmark interest rate has 
been an at ultra-low zero to 0.25% since the COVID pandemic struck with force 
in the spring of 2020 but there are growing calls it to begin removing its 
support in the face of rising price pressures this year.

   The beige book found "significantly elevated" prices with widespread 
increases across industry sectors due in large part to supply-chain bottlenecks.

   Prices for steel, electronic components and shipping costs all "rose 
markedly," during the survey period, the report said.

   Expectations for future price increases varied, the Fed report said, with 
some business contacts expecting prices to remain high or even increase 
further, while others expected prices to moderate over the next the next 12 

   Fed board member Randall Quarles said in a speech Wednesday that he believes 
elevated inflation will start to "decline considerably next year from its 
currently very elevated rate." That reflects his belief that the factors now 
disrupting the economy, such a supply bottlenecks, "appear likely to fade over 

   The beige book report noted that while the demand for labor was high, job 
gains had been dampened by a low supply of workers, forcing many retail, 
hospitality and manufacturing companies to cut hours or production because they 
did not have enough employees.

   "Firms reported high turnover as workers left for other jobs or retired," 
the Fed report said. "Child-care issues and vaccine mandates were widely cited 
as contributing to the problem."

   In an effort to deal with the labor shortages, the Fed said many companies 
were offering more training to prospective workers and also boosting wages.

   In addition to higher starting wages and increased pay to retain workers, 
companies reported offering signing and retention bonuses, flexible work 
schedules or increased vacation time as other incentives, the Fed survey found.

   The Fed's report was based on interviews conducted by the 12 regional banks 
on or before Oct. 8.


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