Fed's Beige Book Freaks Out Over Unprecedented Nationwide Shortages Of Everything

With the economy overheating, it will hardly come as a surprise that the latest Fed Beige Book - which found that the economy expanded at what the Fed absurdly called a "moderate pace" from early April to late May, at least clarifying that this was a "somewhat faster" rate than the prior reporting period - one of the top concerns was soaring costs, but nothing spooked the various Fed districts quite as much as what appears to be a shortage of everything, with district after district complaining about broken supply chains, a lack of workers, and critical commodities that just can't be procured, all resulting in sharply higher prices, slower delivery times and all around chaos.

Reading the report, we learn that several Districts cited "the positive effects on the economy of increased vaccination rates and relaxed social distancing measures, while they also noted the adverse impacts of supply chain disruptions. The effects of expanded vaccination rates were perhaps most notable in consumer spending in which increases in leisure travel and restaurant spending augmented ongoing strength in other spending categories."

Commenting on the overall state of economic activity, the Fed found that:

  • Light vehicle sales remained solid but were often constrained by tight inventories.
  • Factory output increased further even as significant supply chain challenges continued to disrupt production.
  • Manufacturers reported that widespread shortages - there's that word again - of materials and labor along with delivery delays made it difficult to get products to customers.
  • Similar challenges persisted in construction.
  • Homebuilders often noted that strong demand, buoyed by low mortgage interest rates, outpaced their capacity to build, leading some to limit sales. Nonresidential construction increased at a moderate pace, on balance, even as contacts in several Districts said that supply chain disruptions pushed costs higher and, in some cases, delayed projects.
  • Demand for professional and business services increased moderately, while demand for transportation services (including at ports) was exceptionally strong.
  • Lending volumes increased modestly, with gains in both household and business loans. Overall, expectations changed little, with contacts optimistic that economic growth will remain solid.
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