The US economy saw “slight to moderate” growth in June while signs of mounting inflation remained scarce despite tight labor markets, the Federal Reserve said today. Most regions also expect the middling expansion to continue in the coming months, but businesses said they continue to feel pressure to offer higher pay and benefits to attract qualified workers, according to the Fed’s report on economic conditions. The so-called beige book, which surveys anecdotal reports in the 12 Federal Reserve districts, came as Fed Chair Janet Yellen told lawmakers on Wednesday the central bank still expects to implement only “gradual” interest rate increases over a period of years to support continued growth.
The Fed’s regional banks said their contacts reported a growth at a pace “ranging from slight to moderate,” while most expected “modest to moderate gains” in the coming months, according to the report, which policymakers will review before their next meeting on interest rates July 25-26.
Falling auto sales were a cause for concern, helping soften consumer spending in many parts of the country. Conditions for farmers also were mixed, with some areas experiencing severe drought, according to the report. Signs that inflation could pickup from its current sluggish pace were scant, according to the report. The Fed said prices continued to rise only “modestly” and a few districts reported easing inflation, due in part to cheap fuel.
Despite the absence of upward price pressures, the Fed has twice raised interest rates this year and expects to do so once more — as prices begin to rise after “transitory” factors from early in the year subside. No rate increase is expected this month, however. Fed members have been divided over the threat of inflation and the amount of slack in labor markets, even though unemployment currently sits at only 4.4 per cent.
Federal Reserve banks in San Francisco and St Louis said the scarcity of workers had put upward pressures on wages. According to the St. Louis Fed, “employers reported minimal hiring due to difficulties finding qualified candidates, putting upward pressure on both wages and benefits,” the report said, echoing similar statements in recent editions of the beige book.
But those anecdotal reports contrast with official figures, which showed a monthly increase in average hourly earnings of less than 0.2 per cent in June, below analyst expectations. Disappointing wage growth in recent years has coincided with the slow pace of inflation, which currently sits at 1.4 per cent, with little indication it will rise above the Fed’s two per cent target. Though the report was relatively upbeat, the situation in some districts was less optimistic.
Growth in the Philadelphia region “appeared to slow” to a slight pace, while reports from the Cleveland area were “somewhat less positive” than previously reported. In the Dallas area, “growth in retail sales decelerated” despite reports they were improving in the Mexican border region and in the energy sector.