US economy grows modestly as job market tightens, Fed says

A man walks past the Federal Reserve Bank in Washington, DC.
A man walks past the Federal Reserve Bank in Washington, DC. PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - The US economy expanded at a modest pace across most of the country since mid-April, causing the labour market to tighten as employers continued adding jobs and nudging wages higher, a Federal Reserve report showed on Wednesday (June 1).

"Employment grew modestly since the last report, but tight labour markets were widely noted," according to the Fed's latest Beige Book, an economic survey published eight times a year. "Wages grew modestly, and price pressures grew slightly in most districts."

Fed officials have made clear they expect to raise interest rates in the coming months, possibly as early as this month, if the US economy continues to improve. The policy-making Federal Open Market Committee meets in Washington June 14-15. After raising rates in December, the committee has balked at a second increase because of worries over global growth and financial market turbulence.

Prices in federal funds futures contracts imply that investors see a 24 per cent chance of a rate increase this month, with odds rising to 53 per cent by the FOMC's July session.

Wednesday's Beige Book may do little to change officials' outlook for the economy. It characterized the economy as slowly gaining ground, using versions of the word "modest" or "moderate" 23 times in the report's six-page summary.

The terms were used to describe gains in overall growth, consumer spending, employment, loan demand and financial services. Manufacturing results were reported as mixed, while the energy industry, still ailing form the decline in the price of oil, remained weak.

Among the Fed's 12 districts, Chicago and Kansas City reported slowing growth, while Dallas said the economy grew "marginally." New York characterized activity as "generally flat." Other districts reported modest or moderate growth.

Several districts reported rising demand for labour, particularly for high-skilled workers. Atlanta and Richmond noted that low-skilled positions were also becoming harder to fill. "Wages grew modestly since the last report, with increases concentrated in areas of labor tightness," the report stated.

The report was based on information collected before May 23. It summarizes comments received from businesses and other contacts outside the Fed system.

Economic data have shown steady if unspectacular improvement in the US following a disappointing first quarter. The Commerce Department reported on Tuesday that consumer spending in April rose by the most in almost seven years.