Growth in the US economy and jobs market slowed in July and August, and many businesses expect wage increases to ease broadly in the near term, the Federal Reserve said in its Beige Book survey of regional business contacts.
“Contacts from most districts indicated economic growth was modest,” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee.
Nearly all districts indicated businesses “renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term,” it said.
The Fed’s report indicated US consumers remain robust, especially when it comes to spending on travel and other services, but also showed signs of fraying at the edges of the economy. Slowing demand for goods is weighing on the manufacturing sector and elevated interest rates are continuing to pressure the housing market, where a reluctance to give up a low-rate mortgage has contributed to a shortage of supply.
Companies around the country are reporting increasing difficulty in passing higher costs along to customers, the Beige Book showed. Some regions saw evidence of consumers having run down excess savings and turning more to borrowing to finance purchases.
Data last week showed that despite broad-based job gains in August, some parts of the labor market are cooling. Wages rose at the slowest pace since early 2022 and even as more people joined the workforce, a growing number were unable to find work right away.
Inflation pressures have also abated somewhat. The core personal consumption expenditures index, the Fed’s preferred measure of underlying inflation, rose 0.2% in July for a second straight month, down from readings above 0.3% earlier this year.
“Most districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors,” according to the Beige Book. “However, contacts in several districts highlighted sharp increases in property-insurance costs during the past few months.”
Fed officials are moving more cautiously after raising rates at an aggressive pace last year and delivering more tightening at most meetings this year. Policymaker forecasts published in June indicated two more hikes this year, one of which was delivered at July’s meeting.
Many officials have signaled that they may opt to pause at this month’s meeting to continue assessing disinflation progress, though some have said one or more increases may be needed to fully cool price pressures. Policymakers, though committed to bringing inflation down, have said they’re hoping the Fed’s actions won’t needlessly spur a recession.
Some parts of the country are seeing evidence of increased reliance on support services like food banks. The San Francisco and Dallas Feds said there was increased demand, especially among older adults, with the Dallas Fed citing inflation as a particular burden for seniors.
Chair Jerome Powell, speaking last month at the central bank’s annual conference in Jackson Hole, Wyoming, said the Fed is prepared to raise interest rates further if needed and intends to keep borrowing costs high until inflation is on a convincing path toward its 2% target.
The Beige Book, based on anecdotal information from the Fed’s 12 regional banks, was put together by the Kansas City Fed based on information gathered on or before Aug. 28.
This article was provided by Bloomberg News.