The US economy picked up speed going into the spring on the back of growing confidence among consumers, the Federal Reserve said on Wednesday, and Fed Chair Jerome Powell said it is on track for stronger growth and hiring in the coming months.
Economic activity between late February and early April was buoyed by increased COVID-19 vaccinations and strong fiscal support, and the labor market also improved as more people returned to work, the US central bank said in its latest “Beige Book,” a collection of anecdotes about the economy from its 12 regional districts.
The pace of hiring rose the most in the manufacturing, construction, and leisure and hospitality sectors, reports Reuters.
“Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors,” the report said.
Overall, outlooks were more optimistic since the last report in March, the Fed said.
Hospitality contacts told the Atlanta Fed they had “solid bookings for the remainder of spring and through the summer months and beyond,” according to the report.
Among the most notable areas of improvement was tourism, with a number of districts pointing to signs that the sector hit hardest by the onset of the coronavirus pandemic last year was getting back on its feet.
Perhaps for no district was the tone of commentary around tourism as improved as it was for New York.
Three months ago, New York Fed officials used the Beige Book to describe tourism in New York City as “exceptionally weak.” Wednesday’s report said “tourism has continued to trend up,” with air travel rising sharply and hotel occupancy rates finally climbing above 50 per cent.
That improvement appeared to bolster conditions for the region more broadly. While most districts said the pace of growth in their regional economies was moderate, the New York Fed said its economy “grew at a strong pace for the first time during the pandemic, with growth broad-based across industries.”
That occurred despite an increase in COVID-19 cases in the region, the New York Fed said. “Moreover, business contacts have grown increasingly optimistic about the near-term outlook.”
FOCUS ON WAGES
Powell said this week that the economy was at an “inflection point” where growth and hiring could pick up speed over the coming months thanks to increased COVID-19 vaccinations and strong fiscal stimulus.
Speaking on Wednesday to the Economic Club of Washington, he repeated his rosier outlook.
“I think we are going into a period of faster growth and higher job creation and that’s a good thing,” Powell said. “I would point out there are still risks, in particular I would say the main risk is definitely another spike in cases perhaps in one of the virus strains that may be more difficult to treat.”
The United States added 916,000 jobs in March, the largest gain in seven months, according to Labor Department data. And US consumer prices rose at the fastest clip in more than 8-1/2 years in March as vaccinations and stimulus boosted economic activity, according to Labor Department data released on Tuesday.
Businesses across many Fed districts cited mounting cost pressures, with many contacts pointing to supply chain bottlenecks as a primary culprit and saying these were likely to persist for the near-term at least, the Fed said in its report.
One Cleveland Fed contact cautioned, however, “that ‘the imbalances causing costs to rise are not likely to be resolved quickly.’ However, many expect supply chain challenges to dissipate later in the year, and this will ease cost and price pressures,” the report said.
Powell and other Fed officials, however, say the brighter economic forecasts and brief period of higher inflation will not affect monetary policy, and the central bank will keep its support in place until the crisis is over. The US economy is still 8.4 million jobs short of its pre-pandemic levels.
Policymakers agreed last month to leave interest rates near zero and to keep purchasing $120 billion a month in bonds until there was “substantial further progress” toward the Fed’s employment and inflation goals. Fed officials will gather again in two weeks for their next policy-setting meeting.
Wednesday’s report highlighted the strategies some businesses are considering as they reopen, increase capacity and attempt to recruit workers. One staffing services firm told the Cleveland Fed that pay had for the first time become the top priority of job seekers.
Several workforce contacts suggested that employers might be delaying wage hikes in hopes of a surge of newly vaccinated job seekers, the Minneapolis Fed reported: “Why start raising wages when a lot of labor might be coming back?”