By Yasin Ebrahim
Investing.com – The economic recovery continued to pick up pace, but the dearth of skilled labor and rising input prices are expected to continue in the months ahead, according to the Fed's Beige Book released Wednesday.
The central bank’s Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through May. 25, showed that while the economy continued its recovery, inflation and labor supply shortages have not ebbed.
"The national economy expanded at a moderate pace from early April to late May, a somewhat faster rate than the prior reporting period," according to the Beige Book. Labor supply, meanwhile, is expected to remain "constrained in the months ahead ... [while] contacts anticipate facing cost increases and charging higher prices in coming months," it added.
The update on the labor market comes ahead of the nonfarm payrolls report due Friday.
Continuing supply chain disruptions have propped up inflation, with many "contacts noting sharp increases in construction and manufacturing raw materials prices. Increases were also noted in freight, packaging, and petrochemicals prices," the report showed. But the strengthening in demand has allowed some businesses in sectors including manufacturers, builders, and transportation to pass much of the cost increases to their customers.
The fresh report on rising prices comes as the Federal Reserve has maintained its stance the sharp upturn in rising costs will prove temporary.
Running the economy hot amid a tight labor market, however, is starting to have an impact on some businesses forced to rein in activity as demand for labor outpaces supply." The lack of job candidates prevented some firms from increasing output and, less commonly, led some businesses to reduce their hours of operation," the Fed's said in its Beige Book report.
The outlook on the consumer, the backbone of the U.S. economy, continues to lean positive as reopening continues.
"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," according to the report.