The US economy has expanded at a modest pace since the start of the year, although consumers showed they were more vulnerable than expected to rising prices, the Federal Reserve said in its Beige Book.
“Overall, economic activity has increased slightly since the beginning of January, with eight areas reporting a slight to modest increase in activity, another three showing no change and one seeing a slight slowdown”, the report released on Wednesday showed. “Consumer spending, especially for retail goods, has contracted slightly in recent weeks. Companies are finding it harder to pass on higher costs to their customers, who are becoming more sensitive to price changes”, adds the Fed
In addition, material costs for many manufacturers and construction companies have shrunk in recent weeks.
The latest version of the Beige Book was compiled by the Fed in San Francisco, using information collected before or on February 26. The report includes data and commentary on business conditions in each of the 12 counties.
It is clear from the publication that employment in most areas continues to grow, albeit at a modest pace.
“Overall, the tight labor market is increasingly easing, with almost all sectors seeing some improvement in labor availability and employee retention”, the regulator commented.
Many economists expect the labor market to cool this year, an outlook supported by a growing list of major companies cutting staff in recent weeks. Still, the Labor Department’s January jobs report showed that new jobs rose by the most in a year.
The Beige Book also highlights several indicators of slower wage growth. Tighter labor costs are likely to further tame inflationary pressures that unexpectedly intensified earlier this year.
Both consumer and producer prices unexpectedly rose in January after inflation had slowed for several months, throwing off investors’ bets on when the regulator would start cutting interest rates. Market participants are now predicting that the first downgrade will be made in June.
Earlier on Wednesday, Fed Chairman Jerome Powell told lawmakers that the US central bank was in no rush to cut interest rates until central bankers were convinced that inflation was returning to its target.
“If the economy develops as we expect it will probably be appropriate to start cutting our rates at some point this year. But the economic outlook is currently uncertain and progress towards our 2% inflation target is not assured”, said Jerome Powell
