Fed's Beige Book Shows Mounting Tariff Concerns Among Businesses -- Update

07/18/18 03:32 PM EDT
By Sarah Chaney and Sharon Nunn 

WASHINGTON -- Manufacturers across the U.S. expressed concern about tariffs, with many reporting higher prices and supply-chain disruptions in the wake of new trade policies, according to a Federal Reserve report released Wednesday.

Ten of the Federal Reserve's 12 districts reported moderate or modest economic growth so far this summer, the Fed said in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on information collected on or before July 9 and showed many businesses expressing uncertainty regarding the impact of trade.

The Trump administration has imposed tariffs on billions of dollars worth of imports, and it has threatened more, leading to retaliatory tariffs on U.S. goods.

Some manufacturers and construction firms in the Fed report said tariffs had resulted in higher prices for products, as well as supply-chain chaos.

For one Maryland can manufacturer, tariffs have meant "he could not get the quality of steel needed domestically and anticipated losing business to foreign competitors who are not faced with steel tariffs."

In the Philadelphia Fed district, "one machinery manufacturer noted that the effects of the steel tariffs have been chaotic to its supply chain -- disrupting planned orders, increasing prices, and prompting some panic buying," the beige book said.

In the Chicago Fed district, companies expressed increased concerns about the impact of trade disputes on the agricultural industry.

Still, the beige book showed the effect of tariffs has yet to materialize beyond a dip in sentiment for some companies. In the Boston Fed district, "contacts expressed concerns about tariffs but none cited trade issues as affecting demand or hiring and capital expenditure plans, " the report said.

In some cases, tariffs are speeding up business for manufacturers. Businesses in the Cleveland Fed district "remarked that concerns about future trade- and inflation-related price increases had prompted some customers to accelerate purchases." Manufacturers in this district also expected continued economic growth to propel customer demand, at least in the near term.

Employment continued to rise at a modest to moderate pace in most districts, the report said. Most districts reported firms had trouble finding qualified labor, which was in some cases constraining growth, according to the report.

However, despite these tight labor markets, wage increases were described as modest to moderate, on balance.

The Labor Department has reported continued hiring and that average hourly earnings for private-sector workers grew 2.7% from a year earlier in June. That outpaced the 2% gains seen early in the recovery but was still a modest gain by historical standards given the unemployment rate last month was 4%.

Meanwhile, prices in all districts rose at a modest to moderate pace on average. Government reports have shown a pickup in inflation recently, a reversal from much of 2017 when Fed officials struggled to explain surprisingly weak inflation readings. The price index for personal-consumption expenditures, the Fed's preferred inflation measure, advanced 2.3% from a year earlier in May, exceeding the central bank's 2% target.

Overall strength in the economy has supported the central bank's plan to keep gradually lifting short-term interest rates, a message Fed Chairman Jerome Powell reiterated Tuesday and Wednesday in congressional testimony.

The Fed's rate-setting committee "believes that -- for now -- the best way forward is to keep gradually raising" rates, Mr. Powell said Tuesday during testimony before the Senate Banking Committee.

Write to Sarah Chaney at sarah.chaney@wsj.com and Sharon Nunn at sharon.nunn@wsj.com

 

(END) Dow Jones Newswires

July 18, 2018 15:32 ET (19:32 GMT)

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