US manufacturers increasingly worry trade spats and other factors will dampen their growth prospects, while widespread worker shortages are also hampering industries nationwide, the Federal Reserve said Wednesday.
Even though manufacturers have reported solid growth in recent weeks, and the US economy has continued to turn in respectable albeit slower performance, the Fed’s ‘beige book’ survey added more evidence that concerns are building.
President Donald Trump’s aggressive trade policies, Brexit and other issues are showing signs of hitting global growth. Trump slapped punishing tariffs on steel and aluminum imports, as well as $250 billion in goods from China, which drew retaliation against US products.
Meanwhile, wage increases are becoming more widespread as companies compete to fill open positions, although prices ‘continued to increase at a modest-to-moderate pace’ as firms seeing higher input costs still cannot consistently pass them along to consumers, the report said.
The anecdotal reports in the beige book are consistent with the outlooks offered by the International Monetary Fund and Organization for Economic Cooperation and Development, which have downgraded forecasts for US and global growth this year amid major trade frictions, Brexit and other factors.
And New York Federal Reserve Bank President John Williams said in a speech on Wednesday that the US economy would ‘slow considerably’ this year to around two percent as the boost from last year’s economic stimulus fades.
Many of the Fed’s 12 regional banks said manufacturing activity remained solid or rose and the San Francisco Fed cited a steel manufacturer in Oregon that ‘noted strong activity in the industry due to lower competition from abroad arising from trade policy actions.’
However, ‘numerous manufacturing contacts conveyed concerns about weakening global demand, higher costs due to tariffs and ongoing trade policy uncertainty,’ the Fed said in the report, prepared in advance of the monetary policy meeting of March 19-20.
And in spite of Trump’s goal to reduce the US trade imbalance, the US merchandise trade deficit soared last year to its highest level ever, while goods deficits with China, Mexico and the European Union likewise hit records.
Jobs not college?
Concerns in American industry were becoming more widespread than in previous reports which for months have expressed worries about the uncertainty caused by the trade friction.
The Cleveland Fed laid out factors weighing on demand and the growth outlook, including ‘slower global growth – particularly in Europe and China,’ as well as ‘continued uncertainty about the future of tariffs on steel and aluminum and ongoing US-China trade negotiations,’ and ‘decreased consumer confidence.’
Meanwhile, tight labor markets continue to serve as a brake on expansion throughout the United States and that is obliging companies in many areas to raise wages and other benefits for low-skilled and high-skilled workers.
‘Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants and construction,’ the report said.
And the St. Louis Fed cited reports of falling enrollment in colleges ‘as potential students were increasingly choosing to enter the labor market’ instead of pursuing higher education.