Fed finds U.S. growth doggedly modest
The economy and hiring continued to expand modestly across most of the United States from mid-May until the end of June, leaving some firms unable to find skilled workers, the Federal Reserve said Wednesday.
In its latest survey of business conditions, the Fed found modest growth in 11 of 12 regions. Cleveland reported “little change” in growth. In its previous survey, the Fed reported modest growth in half the regions. The energy sector, hard hit by low oil prices, remains weak.
The report, known as the Beige Book, will be discussed at the Fed’s meeting on July 26-27 as policymakers weigh whether and when to raise short-term U.S. interest rates — something they’ve been reluctant to do since hiking rates in December for the first time since 2006. The Fed was wary about the financial turmoil and potential economic damage caused by Britain’s surprise June 23 decision to leave the European Union.
“The Beige Book does not show any evidence that the Fed is going to have to act quickly in raising interest rates,” Thomas Simons, senior money market economist at Jefferies LLC in New York, wrote in an email. “Public speeches in recent weeks have been preaching patience in assessing the economy and global financial markets and the Beige Book is consistent with that approach.”
Some regions reported a shortage of skilled workers, especially in information technology, biotechnology and health care. Cleveland, Chicago and San Francisco reported that wages were rising for entry-level employees.
While the Fed said its contacts saw “signs of softening” in consumer spending, the outlook in the months ahead “was predominantly optimistic” across most of the U.S.
The Fed said manufacturing activity was “mixed” while residential real estate activity “continued to strengthen” since the previous report.
Fed officials are weighing progress on their mandate for maximum employment to decide the timing of the next rate hike and expect that higher wages as the economy advances will feed through into an uptick in inflation, which has been under their 2 percent target since 2012.
Still, overall wages weren’t growing much. Neither was inflation, which has stayed below the Fed’s 2 percent annual target. Consumer spending was “positive” but appeared to be weakening.
The U.S. economy got off to a slow start in 2016, expanding at a laggardly 1.1 percent pace from January through March. Economists expect growth to pick up in the spring and summer.
The Labor Department reported last week that U.S. employers added a healthy 287,000 jobs in June, a relief after May brought just 11,000 new jobs.