Fed survey finds US economy growing at moderate pace

Labour markets still tight with some districts reporting widening labour shortages

March 2, 2017
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WASHINGTON—The Federal Reserve said the U.S. economy has been growing at a moderate pace, helped by sustained gains in consumer spending.

In its latest survey of economic conditions around the country, the Fed found that the Fed’s 12 regional banks all depicted growth as either “modest or moderate” from January through mid-February.

Labour markets continued to be tight with some districts reporting widening labour shortages, especially for skilled jobs such as engineering and information technology. Some districts reported a pickup in the pace of wage growth, which has been subdued through most of this economic expansion.

The Fed’s survey, known as the Beige Book, will be used when Fed officials next meet on March 14-15. The possibility of a rate hike at the meeting has risen recently.

Until recently, the prevailing view was that the Fed would hold off raising rates until June, preferring to await further information on the outlines of President Donald Trump’s economic stimulus program of tax cuts and spending increases. However, minutes of the Fed’s discussion at their last meeting on Jan. 31-Feb. 1 found that many officials believed a rate hike would be needed “fairly soon.”

Since then, various Fed officials have signalled that they were edging closer to supporting another rate hike. William Dudley, the president of the Fed’s New York regional bank, said this week he believed the case for a hike in rates was now more compelling.

The central bank boosted its benchmark rate by a quarter-point in December to a range of 0.5 per cent to 0.75 per cent. It was the second hike, following an initial quarter-point move in December 2015. Before then, the Fed had kept its key policy rate at a record low near zero for seven years in the wake of the worst recession since the 1930s.

Federal Reserve Chair Janet Yellen will deliver a speech on the economy in Chicago, when she may send a clearer signal about the timing of the Fed’s next rate hike.

At its December meeting, the Fed had said it expected it would raise rates three times in 2017.

The new economic survey said that there had been gains in consumer spending, helped by increases in demand for autos. But the report said that many retailers were reporting a subdued pace for sales, which were being held back by an on-going shift from in-store purchases to sales on the internet.

Manufacturing activity was reported to have accelerated slightly. The energy sector, which had been hard hit by a slump in prices, was seeing a modest rebound.

In addition to shortages for skilled workers, the report said that there were reports of shortages in the leisure and hospitality industry and also in construction and manufacturing.

The Fed said that price pressures had changed little from the previous report, with four districts saying that prices had levelled off. Other districts said they were continuing to see modest gains in prices.