(Bloomberg) — Federal Reserve officials meet this week as consumers and companies fret the U.S. economy is facing the most widespread supply crunch since the oil crisis of 1973.
Chair Jerome Powell and his Federal Open Market Committee meet Tuesday and Wednesday as supply chains fray at multiple junctions for trade. The hard part of their job: deciding if snarls are localized and temporary, or are longer-term headwinds that’ll fan inflation if supply and demand remain out of balance.
Ports including Los Angeles and Savannah, Georgia, are congested, key manufacturing materials such as semiconductors are tricky to source, commodity prices are soaring and some employers are struggling to find even unskilled workers. Yet problems are uneven, with ports in Boston and Oakland, California, promoting the relative ease of moving goods across their docks.
In the Fed’s recent snapshot of the economy, 10 of its 12 regional banks reported anxiety of some form of scarcity, be it of workers, inputs or goods. Forms of the word “shortage” appeared 70 times, six of the districts cited “bottlenecks” and most reported “significantly elevated prices.” Added together, use of “shortage” in the so-called Beige Book is around its highest since the early 1970s, according to MetLife Investment Management.
The central bank’s dilemma is whether the supply squeeze represents so great an inflationary threat that will need addressing with tighter monetary policy or will soon pass as the economy returns to normal, meaning policy can remain super loose for longer. The upcoming holiday season will pose a further test to the outlook.
“In the U.S. and in other advanced economies with these supply constraints and shortages and therefore elevated inflation, they are likely to last longer than previously expected –- likely well into next year,” Chair Jerome Powell said Oct. 22. “But it is still the most likely case that as supply-side constraints abate, as they eventually will, and as job gains move back up, inflation will move back down closer to our 2% goal.”
The Fed districts are keeping tabs on how the risks break down regionally.
In an October survey of businesses by the Atlanta Fed, 52% of respondents said they had hired new suppliers to mitigate disruptions and 34% had changed their products or services. Thirty-three percent had shifted from “just in time” management of inventories to “just in case.”
In another poll, the Richmond Fed found almost three-quarters of large and small firms alike experiencing tangled supply chains. Availability of materials, shipping problems and production delays were the most cited challenges.
In response to questions from the Dallas Fed, where winter storms earlier this year pummeled manufacturers of chemicals, plastics and other industrial ingredients, a metals maker said “it is beginning to feel like we are headed to a slowdown in a few months with inflation kicking in.”
A chemical maker added, “the potential for recession is ever increasing without major fiscal policy improvement.”
“In some cases the economy is clearly supply constrained, and some people are hanging back from working during Covid,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “But some of the supply disruptions are also a function of demand being unusually high.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
