National Summary

This report was prepared at the Federal Reserve Bank of Boston based on information collected on or before July 2, 2021. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.

Overall Economic Activity
The U.S. economy strengthened further from late May to early July, displaying moderate to robust growth. Sectors reporting above-average growth included transportation, travel and tourism, manufacturing, and nonfinancial services. Energy markets improved slightly, and agriculture had mixed results. Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods. Strained car inventories resulted in somewhat lower car sales despite steady demand, and home sales rose slightly despite limited supply. Nonauto retail sales grew at a moderate pace on balance, and tourism was buoyed by the further abatement of pandemic-related concerns. Residential construction softened in several Districts in response to rising costs, while commercial construction was mixed but up slightly on balance. Bank lending activity increased slightly or modestly in most Districts. The outlook for demand improved further, but many contacts expressed uncertainty or pessimism over the easing of supply constraints.

Employment and Wages
Three-quarters of Districts reported either slight or modest job gains and the remainder reported moderate or strong increases in employment. Healthy labor demand was broad-based but was seen as strongest for low-skilled positions. Wages increased at a moderate pace on average, and low-wage workers enjoyed above-average pay increases. Labor shortages were often cited as a reason firms could not staff at desired levels, with firms in three Districts delaying expansion or scaling back services due to understaffing. Higher than average turnover and lower retention rates were reported in three Districts. All Districts noted an increased use of non-wage cash incentives to attract and retain workers. Firms in several Districts expected the difficulty finding workers to extend into the early fall.

Prices
Prices increased at an above-average pace, as seven Districts reported strong price growth and the rest saw moderate gains. Pricing pressures were broad-based and grew more acute in the hospitality sector, as the reopening of hotels and restaurants confronted limited supplies of materials and workers. Construction costs remained high, but lumber prices reportedly eased a bit. Container prices returned to very high levels after having moderated in the spring. Pricing power was mixed, as some contacts reported that high end-user demand enabled them to increase their prices and others said that input price pressures had reduced their profit margins. While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months.

Highlights by Federal Reserve District

Boston
Contacts reported solid increases in demand and modest gains in employment. Wage and pricing pressures intensified, and several firms implemented significant price and/or wage increases. Labor demand strengthened further but many contacts continued to complain of labor shortages. The outlook was mostly unchanged but prospects for office leasing appeared somewhat less bleak.

New York
The regional economy continued to grow at a strong pace, and contacts were increasingly optimistic about the near-term outlook. Both hiring and wages picked up and businesses reported widespread labor shortages. Tourism picked up further, and service-sector businesses reported widespread improvement. Input price pressures have intensified further, and more businesses have raised or plan to raise their selling prices.

Philadelphia
Business activity continued at a moderate pace of growth during the current Beige Book period – still below levels attained prior to the pandemic. More widespread vaccinations have led to a faster resumption of normal activity which has exacerbated labor shortages and wage pressures for low-wage jobs. However, employment continued to grow modestly, as did overall wage growth, while prices continued to grow moderately.

Cleveland
The District's economy expanded at a solid pace amid further progress in the fight against COVID-19, although growth was hampered by labor and other supply constraints. Most firms remained optimistic about the strength of demand in coming months but were less certain that supply chain challenges would ease. Thus, many expected that upward pressure on wages, other in-put costs, and prices would persist in coming months.

Richmond
The regional economy continued to grow moderately in recent weeks. Manufacturers and service sector businesses experienced growth in sales, but in many cases, growth was being restrained by lack of available labor, raw materials, shipping capacity, or inventories. Employment and wages rose modestly, and firms continued to struggle finding workers. Price growth increased slightly from an already elevated rate.

Atlanta
Economic activity expanded at a moderate pace. Labor markets improved and wage pressures picked up for some positions. Some nonlabor costs remained elevated. Retail sales increased. Leisure, hospitality, and tourism activity strengthened. Residential real estate demand remained strong. Commercial real estate conditions strengthened. Manufacturing activity expanded. Banking conditions were steady.

Chicago
Economic activity increased moderately. Growth was limited by supply constraints. Employment increased strongly, business spending increased moderately, manufacturing increased modestly, and consumer spending and construction and real estate were flat. Wages rose moderately while prices rose strongly. Financial conditions im-proved slightly. Prospects for agriculture income in 2021 were little changed.

St. Louis
Economic conditions have continued to improve at a moderate pace since our previous report. Contacts continue to report that labor and material shortages are re-straining their ability to meet customer demand. Overall inflation pressures remain elevated, but firms report varying degrees of pass-through to customers.

Minneapolis
The District economy saw strong growth despite challenges of inventory shortages, higher prices, and labor needs. More workers entered the labor market, but still lagged behind hiring demand. Consumer demand remained high, fueling continued growth in services, tourism, and manufacturing. Though commodity prices remained high, ag producers faced widespread drought. MWBE firms had an optimistic outlook on the economy.

Kansas City
Economic activity expanded moderately in June, and further gains were expected over the next few months. Consumer spending increased moderately, with robust gains in retail sales and a moderate pick up in restaurant and tourism activity. Contacts in most other sectors also reported stronger demand and increased activity levels. Wage growth accelerated as labor shortages persisted, and both input and selling prices rose robustly.

Dallas
The District economy expanded at a solid rate, bolstered by continued broad based growth across sectors. Supply chain challenges and labor shortages were more widespread than in the last report and were slowing the pace of expansion. Outlooks stayed positive, though uncertainty increased.

San Francisco
Economic activity in the District expanded notably, and labor market conditions improved moderately. Wages and inflation picked up further. Retail sales and activity in the services sector strengthened solidly. Activity in the manufacturing and agriculture sectors rose more modestly. Residential construction remained very strong, while lending activity grew slightly.

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Last Update: July 14, 2021