US economic growth being hampered by strong dollar, low energy prices, says Fed

Traders at the New York Stock Exchange on Jan 7.
Traders at the New York Stock Exchange on Jan 7.PHOTO: REUTERS

WASHINGTON (REUTERS, AFP) - The US economy continued to show mixed signals from late November to early January, with improvements in the labour market and consumer spending offset by the drag of a strong dollar and low energy prices, the Federal Reserve said in its latest Beige Book report on Wednesday (Jan 13).

The report, tracking recent economic conditions through January 4, comes two weeks before the US central bank holds its first monetary policy of 2016, after making a landmark decision last month to raise interest rates for the first time in more than nine years. The collection of anecdotal information helps to inform policy decisions by the Federal Open Market Committee (FOMC).

The Boston Fed described economic activity as upbeat, while the New York and Kansas City districts described it as essentially flat. Most others described activity as modest.

Half the US central bank's districts said the outlook for future economic growth remained mostly positive.

But while the labour market continued to improve and most districts reported "slight to moderate" growth in consumer spending, other sectors showed further strain.

Most manufacturing sectors weakened and "several districts reported the strong dollar's negative impact on demand," the Fed said. Contacts in the Philadelphia and San Francisco districts also cited weak global demand as contributing to declines.

Elsewhere, most areas of the energy sector "struggled further" as oil and gas prices continued to drop. The Cleveland and Kansas districts reported that warmer-than-usual temperatures "increased already abundant inventories of oil and gas and kept downward pressure on already low energy prices."

On the whole, Fed policymakers see a further four quarter-point increases in 2016 but have made clear that would depend on incoming data and a tangible move in inflation toward the Fed's 2 percent target.

The report showed little sign the wage pressures that started to tick up in October and November were becoming sustained.

Nearly all districts said overall price pressures were minimal, and just two districts reported an acceleration in wage gains. "Wage pressures remained relatively subdued," the Fed noted.

The Beige Book was compiled by the Philadelphia Fed with information collected on or before Jan. 4, 2016.