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US Fed reports tight labor market but modest wage growth

18 January 2018

While most districts reported on-going labor market tightness and challenges finding qualified workers across skills and sectors, wages still increased "at a modest pace", according to the report.

Nearly all of the 12 Federal Reserve districts reported "modest to moderate gains" in economic activity at the start of 2018, a Federal Reserve survey showed.

It seems like a contradiction: the economy is growing so firms are expanding and hiring, but without a supply of readily available workers business can not grow. The report is based on surveys of businesses in the Fed's 12 districts. The Dallas district - which includes the hurricane-stricken Houston area - was a standout reporting "a robust increase". The Philadelphia Fed described loan demand as modest, while the Cleveland Fed cited one accounting executive who said they had conducted more merger and acquisition activity in 2017 "than in the past five years combined".

The report appears generally to support the Fed's outlook for 2018, which forecasts 2.5 percent economic growth and three interest rate increases.

The central bank also reported that employment continued to grow at a "modest" pace.

Over the past year the beige book has reflected the increasing difficulty companies have filling positions, with many resorting to increasing wages, signing bonuses, and expanded training programmes.

Officials at the Fed on Wednesday released their latest "Beige Book". "Retailers in some districts reported modest price increases and there were reports of rising home prices across the country", the Fed said.

Several regional Fed districts noted increases in manufacturing, construction, and transportation input costs, according to the report.

There were scattered mentions in the survey about the impact of the massive USA tax overhaul approved in December, with some expecting at least a short-term boost.

"Reports indicated that some manufacturers increased capital expenditures over the reporting period", the Beige Book said. Chicago noted slight increases, while San Francisco reported price inflation was down slightly.

US Fed reports tight labor market but modest wage growth