The Atlanta Fed’s Business Inflation Expectations survey finds that firms in the district expect to pay the biggest cost increases since at least late 2011.
The largest number of small firms in the NFIB survey in four decades are raising selling prices and the highest number since 2008 intend to raise prices further, while a record number can’t fill job openings. The report warns, “Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth. Owners are raising compensation, offering bonuses and benefits to attract the right employees.”
The second largest number of ISM services firms on record (back to 1997) paid higher prices for materials in May, and the third largest number reported waiting longer for vendor deliveries. The most ISM manufacturers since 1974 reported waiting longer for supplies, and many are consistently paying more for materials this year.
ISM respondents in both surveys reported a record backlog of orders, low inventories, rising costs, and increased difficulty getting parts and hiring staff (whether qualified or not). This has gone beyond bonuses, as some companies are offering cash just to get people to show up for an interview.
The Fed’s own Beige Book suggests supply-chain disruptions, worker shortages, and rising input costs are pushing firms to forgo demand and raise prices. The regional report says it “remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople”, and that “contacts anticipate facing cost increases and charging higher prices in coming months.” (Underlined emphasis is mine.) The Cleveland District noted that “hiring activity was reportedly modest because of a dearth of job applicants”, confirming that underwhelming payroll reports of late aren’t due to a lack of demand.
You get the message. In large font, the peppy rollout of stimulus and vaccines is causing U.S. demand to rebound much faster than supply. This is creating many unpleasant side-effects, like inflation and an overheated housing market, just a few quarters after the economy’s collapse instead of the usual several years for imbalances to emerge after a recession. As more states and countries fully reopen, some of the supply-chain glitches will ebb. But worker shortages, which normally don’t show up until the late stages of an economic boom, could become a persistent source of price pressure if the participation rate doesn’t keep up with hiring, and, so far, it’s been locked in a tight range since last summer. The writing is on the wall: The Fed’s temporary-inflation mantra is sounding more dated by the week.