An eagle sculpture stands on the facade of the Marriner S. Eccles Federal Reserve building in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Fed Says Economy Grew `Moderately' Amid Strong Manufacturing

(Bloomberg) -- The U.S. economy expanded moderately through much of April and May, a subtle upgrade from previous periods, with little indication of overheating, a Federal Reserve survey showed.

The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through May 21, said manufacturing showed “strong” gains, while employment and prices continued to rise “modestly” or “moderately.”

“Manufacturing shifted into higher gear with more than half of the districts reporting a pickup in industrial activity and a third of the districts classifying activity as ‘strong,’” according to the report, released Wednesday in Washington.

The report may bolster the case for the central bank to raise interest rates when policy makers next meet June 12-13 in Washington. While a political crisis in Italy has roiled debt markets in recent days, the odds of a rate increase at that meeting implied by pricing in federal funds futures contract remained above 90 percent.

The Fed is broadly expected to lift rates three or four times in 2018, including the move it made in March.

‘Soft’ Spending

The Beige Book acknowledged that consumer spending was “soft” during the period, hindered by flat auto sales, and again noted that companies were concerned by the uncertainty of international trade policy.

“Still, outlooks for near-term growth were generally upbeat,” the report said.

Companies continued to report difficulty finding workers to fill vacancies across skill levels.

“Many firms responded to talent shortages by increasing wages as well as the generosity of their compensation packages,” the report said. “In the aggregate, however, wage increases remained modest in most districts.”

U.S. unemployment fell to 3.9 percent in April, the lowest since 2000. Wages, however, have continued to rise only moderately, with year-on-year gains in hourly earnings at 2.6 percent in April.

‘Price Increases’

The survey also reported that, in a few districts, wage increases and rising material costs -- notably for steel, aluminum, oil, lumber and cement -- were becoming more common.

“Some districts also noted that their retail contacts were more able to pass along price increases to their customers than in the recent past,” the Fed reported.

The Dallas district saw the biggest gains in overall growth, according to the survey. In the St. Louis district some firms reported “relaxing drug-testing standards and restrictions on hiring felons to alleviate labor shortages.”

©2018 Bloomberg L.P.