The U.S. economy grew at a slight-to-moderate pace in March and early April, though a few districts “reported some strengthening,” a Federal Reserve survey showed.
While growth continued at a similar pace as the previous report, most districts saw stronger home sales and manufacturing conditions were seen as favorable despite some uncertainty about trade, according to the report released Wednesday in Washington. Observations on consumer spending were mixed.
The central bank's Beige Book economic survey, based on anecdotal information collected by the 12 regional Fed banks through April 8, said employment continued to increase across the country with prices rising modestly since the prior report. The last release, in early March, said 10 districts saw slight- to-moderate growth.
Fed officials have been signaling there are high hurdles to raising interest rates while inflation continues to undershoot their 2 per cent target and risks to the economy abound. Minutes of their March meeting show they grappled with “significant uncertainties” and persistently low inflation as they scrapped forecasts for rate hikes in 2019.
Officials have backed away from their December projections for two rate increases this year amid global growth concerns, with Philadelphia Fed President Patrick Harker saying Wednesday he forecasts one in 2019 “at most.” Some investors now see a chance of a 2019 rate cut.
The Beige Book, prepared by the St. Louis Fed, said the tight labor market led to “continued wage pressures,” with most districts reporting moderate pay gains.
“Employment increases were most highly concentrated in high- skilled jobs,” according to the report. “However, labor markets remained tight, restraining the rate of growth.”
Fed officials have said that outlook may be threatened by risks related to China, Brexit and uncertainty around trade policy.
Input cost increases were modest-to-moderate, and “tariffs, freight costs, and rising wages were often cited as key factors driving this trend,” according to the report.
Some contacts in the Boston district said they continued to fear the impact of tariffs, while those in the Philadelphia region said “weak global demand and trade uncertainty” weighed on growth.
The survey also cited weather factors, with some agricultural contacts “expressing concerns over the impact of current and future rainfall and flooding.” Farmers in the St. Louis district worried about Mississippi Valley flooding, while worse- than-normal winter weather hampered many sectors in the Minneapolis region.
While the economy has cooled, the labor market remains robust with unemployment close to a half-century low and wage gains near the best level of the expansion. Those pay gains also aren’t showing any sign of fueling a pickup in inflation gauges.
Despite reports of labor shortages across regions, sectors and skill levels, consumer price increases have remained subdued. The Fed’s preferred price gauge, tied to consumption, rose 1.4 per cent in January from a year earlier, the slowest since 2016, while core prices excluding food and energy were up 1.8 per cent.