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. Last Updated: 07/27/2016

Labor Shortages Sign of U.S. Growth

WASHINGTON -- The U.S. economy is still growing strongly with labor shortages reported nationwide, the Federal Reserve said Wednesday in a new report that highlighted concerns that the economy may be growing too rapidly.

The Fed's latest survey of economic conditions around the country, compiled from reports from its 12 regional banks, found only scattered signs of mounting wage pressures and little evidence of rising inflation in general.

But the Fed survey did note developments that could lead to increased inflationary pressures.

"Widespread labor shortages persist in virtually every district, but there have been only scattered reports of acceleration in wages," the Fed survey said. "There are some reports of accelerating prices - largely related to home construction - but there is no evidence of any broad-based pickup in consumer price inflation."

The survey, known as the beige book for the color of its cover, will be used by Fed policy-makers when they meet Aug. 24 to review interest rate policies.

There has been a growing concern in financial markets that the Fed will boost interest rates for the second time this year because of growing fears that the economy is growing too rapidly, given current tight labor markets, and that unless economic activity slows, inflation will get out of hand.

The Fed raised its target for the federal funds rate, the interest that banks charge each other, for the first time in two years on June 30, nudging it up by a quarter point to 5 percent. That move was immediately followed by a matching increase in the banks' prime lending rate, the benchmark for millions of consumer and business loans.

In testimony to Congress last month, Federal Reserve Chairman Alan Greenspan promised to move "promptly and forcefully" at the first signs that tight labor markets are generating inflationary pressures, comments that have been widely interpreted as signaling that the Fed will raise rates at its August meeting.

The report Wednesday found "continued strength in economic activity" in late July and early August, although it did note that retail sales had slowed somewhat in July. It attributed a portion of this decline to depleted inventories at retail establishments. Manufacturing, which had been hard-hit by the Asian currency crisis, was showing signs of a rebound in many parts of the country, although several districts reported continued weakness in textiles and heavy metals such as steel.

The Boston, Cleveland, Dallas and San Francisco Fed districts reported strong demand for computer and telecommunications equipment while Cleveland and Chicago reported orders for heavy trucks, the Fed said.

The report said that housing construction was continuing at a vigorous pace in most districts although there were signs that a lack of available building materials and skilled workers was limiting growth in many areas.

The report said that while hot and dry weather was causing crop damage in the eastern part of the country, crops were generally reported to be in good shape in other areas.