(Bloomberg) -- The US economy showed signs of cooling in recent weeks as hiring and inflation eased slightly, the Federal Reserve said in its Beige Book survey of regional business contacts.

“Employment increased in most districts, though at a slower pace than in previous reports.” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “Prices rose moderately over the reporting period, though the rate of increase slowed in many districts.” 

The survey showed economic activity was little changed overall in April and early May. 

Policymakers are carefully assessing how their tightening campaign over the past 14 months, which brought interest rates to a range of 5% to 5.25% from near zero, is affecting the economy. They have shifted to making decisions on a meeting-by-meeting basis, letting the evolution of data guide policy.

The Beige Book, based on anecdotal information from the Fed’s 12 regional banks, echoes what data has shown recently — that the US economy is still growing, but that inflation is mostly on a downward trajectory. The report was put together by the Chicago Fed based on information gathered through May 22. 

While prices were still rising, some districts said consumers are becoming more sensitive to them.

“High inflation and the end of Covid-19 benefits continued to stress the budgets of low- and moderate-income households, driving increased demand for social services, including food and housing,” the Fed said in the survey.

Rate Effects

Some officials have indicated it may be appropriate to pause hikes at their next meeting in June. Others, wary of persistent inflation, say the central bank may need to do more, even if it comes after they skip hiking at that meeting. 

The US economy has proven resilient, even amid 500 basis points of rate increases from the Fed over the past year. A separate report earlier Wednesday showed job openings surged in April to a three-month high, adding to signs that the labor market remains hot.

Data due out Friday is forecast to show that employers added another 195,000 jobs in May. The unemployment rate, at 3.4%, is at a half-century low. 

“Overall, the labor market continued to be strong, with contacts reporting difficulty finding workers across a wide range of skill levels and industries,” the report stated. “That said, contacts across districts also noted that the labor market had cooled some, highlighting easier hiring in construction, transportation, and finance.”

But inflation remains stubborn. The Fed’s preferred gauge picked up in April by more than forecast, rising at a 4.4% pace, more than double the central bank’s 2% target.

There’s also evidence that the housing sector — where Fed tightening impacts the consumer most directly via an increase in mortgage rates — may have reached its bottom already. A report earlier this month showed sales of new homes unexpectedly rose in April to the highest level since March 2022.

Most districts in the report said residential real estate activity picked up, though the office market continued to show weakness.

Some districts noted weaker demand for transportation, especially trucking. US freight has seen activity slump in the past few months as consumers spend less on goods in favor of services. 

Businesses across the country saw increased spending on leisure and hospitality, with New York City’s tourism almost back to pre-pandemic peaks. Warmer weather drew patrons to restaurants, especially in northern areas.

(Updates with real estate, freight findings in 14th paragraph.)

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