Fed's Beige Book: Economic Growth Modest, Wage Gains Broaden

The economy continued to grow across the U.S. at a modest-to-moderate pace in recent weeks as a tight labor market helped broaden wage gains, though consumer spending was mixed, a Federal Reserve survey showed Wednesday.

The central bank's Beige Book economic report, based on anecdotal information collected by regional Fed banks covering mid-February through the end of March, showed that household purchases outside of automobiles were softer even as Americans were gaining more wherewithal for future spending.

The report paints a picture of an economy maintaining its steady expansion, without a rapid pickup that would reflect the surge in confidence among consumers and businesses. Even so, wages showed progress in responding to a tightening jobs market, with most districts reporting "difficulty filling low-skilled positions" and stronger demand for higher-skilled workers.


The pace of expansion was "equally split between modest and moderate" across the 12 Fed regions, the report said. "In addition, the pickup was evident to varying degrees across economic sectors."

A larger number of businesses also reported high turnover rates and challenges retaining staff, according to the latest Beige Book, which is typically released two weeks before each interest-rate meeting.

Inflation was modest, with selling prices climbing "only slightly," the report showed. Those incremental increases corroborate other recent inflation data. Mild price gains should help keep a floor under consumer spending that slowed in the first quarter — weakness that economists see dragging down the pace of expansion.

Housing Market

Home-sales growth also slowed over the period, while residential construction growth accelerated. The Beige Book report noted a lack of inventory that was restraining housing industry demand, matching other early-year government and private-sector reports.

The report made scant mention of weather that had the potential to interrupt activity, especially in the Northeast. What's more, the New York region reported "little adverse effect from the mid-March snowstorm" and "tourism and travel activity generally picked up" across regions, according to the release.

The survey feedback from businesses across the nation follows the Fed's decision last month to raise the benchmark interest rate by a quarter percentage point for the third time since late 2015. Fed officials, who next meet May 2-3 in Washington, have forecast two more increases in 2017.

Inflation Pickup

The Fed's preferred measure of inflation finally climbed above the central bank's 2% goal, to 2.1%, in the 12 months through February. Excluding food and energy, prices from a year earlier rose 1.8%. For March, a separate gauge of consumer inflation slowed more than forecast.

The jobless rate declined to 4.5% in March from 4.7% in the prior month, though employers added fewer workers and wage gains slowed, according to Labor Department figures.

The Fed's Beige Book, in noting the difficulty of many firms in finding the right workers, detailed the challenges of a respondent in the Boston district who had to eliminate two-thirds of applicants who didn't pass math and drug tests. Restaurant contacts in the same region expressed worry that changes to U.S. immigration policy would exacerbate labor shortages for summer hiring.

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