US firms optimistic but labor shortages constrain growth

American businesses are upbeat about 2018, but more widespread difficulties finding workers are constraining growth for some firms, according to a Federal Reserve survey released Wednesday.

It seems like a contradiction: the economy is growing so firms are expanding and hiring, but without a supply of readily available workers business cannot grow.

The tight labor markets, which extend from low-skilled to high-tech positions, are fueling wage increases in a broader array of industries, the nationwide survey showed.

And some firms expect they will have to raise wages in the months ahead, a change from most of last year when wage and inflation pressures were absent or limited at best.

For the broader economy, all 12 Federal Reserve districts reported economic gains since November that were at least "modest to moderate." The Dallas district -- which includes the hurricane-stricken Houston area -- was a standout reporting "a robust increase."

"The outlook for 2018 remains optimistic for a majority of contacts across the country," the Fed said.

However, the ongoing labor shortage "in some instances was described as constraining growth."

The Fed's so-called beige book survey, which gathers reports from businesses across the nation, was prepared for the central bank's first meeting of 2018, set for January 30 and 31.

- Wage increases broaden -

The Fed is expected to increase its benchmark lending rate three times this year, after three increases in 2017, but is unlikely to make the first move until late March.

The central bank keeps a close watch on wages since those could feed into inflation, which has been running below the Fed's two percent target despite the falling unemployment rate and economic growth that has picked up steam.

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 programs.

But while most districts reported only modest wage increases so far, the latest survey shows the increases are occurring "in a broader range of industries and positions."

The beige book showed only "modest to moderate price growth" since late last year, but Fed policymakers try to raise rates before wage and price pressures show up in the inflation data.

And firms in some districts "expect wages to increase in the months ahead."

Businesses in the Boston district said "difficulty in hiring workers has constrained expansion," and construction firms said it was taking them longer to finish apartment building projects.

- Tax benefits? -

In other areas of the economy, the survey showed holiday retail sales were higher than expected, but home sales were held back by the "limited housing inventory," which echoes the findings of industry surveys.

Most manufacturers reported doing better, with modest growth in the final weeks of 2017, which allowed some to increase capital spending.

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

But firms in several districts reported concerns about the new limits on deducting mortgage payments and personal property taxes from their tax bill, due to the potential impact on the housing market, which is always an engine of economic growth.

One in the San Francisco district noted the changes "could slow mortgage lending," while in Philadelphia firms noted that consumers used any cash on hand "to prepay property taxes, not buy cars

Source: AFP