(Adds details from report)
By Ann Saphir and Howard Schneider
May 31 (Reuters) - U.S. economic activity appeared to
stall in recent weeks, a Federal Reserve report published on
Wednesday showed, with job growth and inflation both slowing,
and near-term business prospects looking slightly worse than
previously.
"Expectations for future growth deteriorated a little,
though contacts still largely expected a further expansion in
activity," the U.S. central bank said in its latest "Beige Book"
compendium of surveys and interviews, conducted across its 12
districts through May 22.
Contacts across districts noted that while labor markets
remained strong, they had "cooled some," the report said, with
businesses in some regions reporting a pause in hiring or
reductions in staffing due to weaker demand or greater
uncertainty.
Meanwhile districts reported that the pace of inflation had
slowed, with prices rising "moderately" and contacts in most
parts of the country expecting a similar pace of price increases
in the coming months.
Fed policymakers early this month increased the benchmark
short-term interest rate a 10th straight time, taking it to a
range of 5.00%-5.25%, and signaled they were near or possibly at
the end of a rate-hike campaign that began last March.
Since that early-May meeting, economic data has generally
come in stronger than expected, with the unemployment rate at a
decades-low 3.4% and inflation by the Fed's preferred gauge at
4.4%, more than twice the Fed's target.
But many Fed policymakers since then have signaled they may
rather wait before undertaking any further policy tightening.
While inflation is still too high, they say, the full impact of
the Fed's rate hikes so far is still making its way through the
economy, and the degree of credit tightening from bank failures
in March remains difficult to gauge.
The Fed's snapshot of business, bank and worker conditions
published Wednesday also said financial conditions "were stable
or somewhat tighter" in most of the country.
Fed policymakers have said credit conditions are a key input
to their calculations for monetary policy-setting.
Overall, bank sector stress appears to have receded in the
months since the March collapse of Silicon Valley Bank and
Signature Bank, despite the failure of an additional regional
bank - First Republic - on May 1.
U.S. lawmakers look on course to approve a deal struck over
the weekend that raises the debt ceiling and averts a
catastrophic default on U.S. Treasuries.
'SCARE' FROM HIGHER RATES
Fed policymakers next meet June 13-14, before which they
will get several more key pieces of economic data, including the
monthly government labor market report for the month of May, and
a fresh read on the consumer price index.
The Beige Book may also help shape their views of where
the economy is heading, and overall did not signal the economy
is either experiencing a hard stop or, conversely, a resurgence
that would suggest the Fed's rate hikes to date are not doing
their job to slow the economy.
About half of districts reported no change in economic
activity in recent weeks, the report showed, while four reported
small increases and two reported "slight to moderate declines."
And there were plenty of pockets of weakness.
"One department store contact reported a sharp sales
decline in his stores that he said had 'worsened throughout
March and April,'" the Cleveland Fed said.
The Minneapolis Fed, like some other districts, noted
growth in consumer spending overall, but a decrease in activity
at minority and women-owned businesses, with one contact who
provides technical assistance to women entrepreneurs noting that
higher interest rates "scare new entrepreneurs."
At the St. Louis Fed, banking contacts said loan demand
had softened and they expected further weakening ahead.
"Contacts reported that clients have been taking distributions
from their portfolios to pay off loans and avoid new borrowing,"
it said.
(Reporting by Ann Saphir; Editing by Andrea Ricci and Chizu
Nomiyama)
© 2024 Thomson/Reuters. All rights reserved.