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US trade war causes general labour shortage

US trade war causes general labour shortage

US firms nationwide complain trade disputes with China and others are boosting the prices of key inputs, while they continue to face widespread labour shortages, the Fed said on Wednesday.

The ongoing difficulty in filling open positions at all skill levels and in every region is delaying projects and pressuring firms to raise wages or benefits – or even employ robots to ramp up production – according to the Fed’s latest “beige book” survey of the economy.

While the reports from the Fed’s regional banks reflected a healthy US economy, with “modest to moderate growth,” President Donald Trump’s aggressive tariff strategy, which has drawn retaliation from trading partners, is potentially adding fuel to inflation.

The central bank is watching price pressures closely to gauge how fast and how far to raise the benchmark lending rate, to allow the economy to continue to grow without an acceleration of inflation.

The Fed has raised the key interest rate three times this year and is widely expected to increase by another 0.25 percentage points in December.

“Manufacturers reported raising prices of finished goods out of necessity as costs of raw materials such as metals rose, which they attributed to tariffs,” the Fed report said.

Some companies are not able to pass on cost increases to customers, and in Philadelphia firms reported “difficulty meeting the prices of foreign competitors who are not exposed to tariffs on the primary input commodities of their products.”

Inflation has increased about two per cent this year, in line with the Fed’s target, but economists fear growing demand, combined with the tariffs and a labour shortage could ignite price increases.

The Fed said wages are only rose “modestly or moderately” in most of the country – the San Francisco region was a notable exception – but the increases were widespread throughout the US.

One staffing firm in Philadelphia noted that “resistance to raising starting wages softened further among their clients after years of holding wages steady.”

But with shortages of entry level and skilled workers, companies also have used non-salary options to attract and retain qualified workers, including signing bonuses, more flexible hours and added vacation.

The report included anecdotes of companies unable to expand or boost production because of a lack of workers at all levels. One had a project delayed by six weeks because it could not find an elevator technician.

Combined with some disappointing earnings reports, that also cite rising costs, Wall Street took the news badly, sending the major indices down sharply following release of the Fed report.

The Dow closed with a 600-point loss, erasing all the gains for the year.

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