Economic growth was modest to moderate across the U.S. in the past two months as labor markets stayed tight without much wage pressure and the auto industry emerged as one of the few possible sources of weakness, a Federal Reserve survey showed.
The central bank’s Beige Book report, based on anecdotal information collected by the 12 regional Fed banks from early July through August, said consumer spending, capital expenditures and manufacturing all were increasing. Employment growth “slowed some” even as worker shortages worsened.
There were mixed results for vehicle sales and auto production, the report said. “Contacts in many districts expressed concerns about a prolonged slowdown in the auto industry,” according to the report, released Wednesday in Washington.
Fed officials have been anxious to gather fresh economic information that could help them determine whether they should lift their benchmark interest rate a third time in 2017. They hiked in March and June largely in response to a robust labor market, but some policy makers have wavered in their commitment to another increase due to weak inflation.
The report only deepened the mystery over why a tightening labor market is failing to trigger higher wages and lift prices more generally.
Prices “rose modestly” across the country, the report said in language that was similar to the last Beige Book report released July 12. Input prices gained, particularly for freight, lumber and steel, the report stated. In response to those increases, however, many firms didn’t pass on those higher costs to their customers.
The Fed’s preferred measure of inflation, excluding food and energy components, was just 1.4 percent in the 12 months through July. Inflation has lagged below the Fed’s 2 percent target for most of the past five years.
With little inflation to worry about, Fed officials are rethinking how low the jobless rate can go before it starts to raise the cost of living.
“Employment growth slowed some on balance, ranging from a slight to a modest rate in most districts,” the report stated. “Labor markets were widely characterized as tight,” with worker shortages most notable in manufacturing and construction, it said.
Firms in Atlanta, St. Louis and Minneapolis were turning down business because of the dearth of people to hire, according to the report. Still, the majority of districts reported “limited wage pressures and modest to moderate wage growth.”
Unemployment has hovered at 4.3 percent to 4.4 percent since April.
The report also included a brief section on the economic impact of Hurricane Harvey, which flooded much of the Houston area. The energy and natural resources industries along the Gulf Coast were “generally positive” before the storm shut some production, the report said.
While it’s too soon to gauge the full extent of the economic fallout, freight prices jumped in the aftermath and the Port of Charleston in South Carolina expected increased volumes in coming weeks as shipments were routed away from the storm-ravaged region.