Economy Growing at Slower Pace

The U.S. economy continued to grow in May - but at a slower pace due to higher food and energy costs and bad weather in some areas, according to a report released on Wednesday by the Federal Reserve.

The Fed’s Beige Book summarized, “Reports from the twelve Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few districts indicated some deceleration.” Information in the latest Beige Book release was collected on or before May 27.

The pace of expansion slowed in the New York, Philadelphia, Atlanta, and Chicago Districts but the Dallas District reported accelerated growth. Most districts also experienced a small upswing in tourism from a year ago, and the Fed expects a good outlook for the summer season.

Consumer spending - including auto sales - was mixed, but most regions experienced slow growth for May. Supply disruptions due to the Japan disaster caused a reduced supply of new automobiles into dealer showrooms, leading to fewer new auto sales. A widespread short supply and high demand of used autos pushed up prices. Smaller, more fuel efficient cars gained popularity with consumers in the Philadelphia, Cleveland, and Chicago Districts, while consumers in the St. Louis District were reported to demand lower-end vehicles rather than higher-end models.

The report said that labor market conditions were gradually improving in most of the nation and wage growth was modest due to “abundant labor availability.” Steeper wage increases were noted for certain highly specialized technical workers that were in short supply, especially in the health care and technology sectors.

Commercial and residential construction remained weak across the nation, but the development of rentals have gained momentum. Most districts also experienced a “steady to stronger” loan demand, especially in the commercial and industrial - and a “widespread improvement in credit quality.” Home prices declined or remained flat in all twelve districts and residential real estate sales “showed continued weakness.”

Farming also suffered widely across the nation. Six of the twelve districts experienced unseasonably cool and wet weather that caused a delay in planting of key crops. Flooding along the Mississippi River flooding slowed production in the Atlanta and St. Louis Districts, and drought conditions led to wildfires in the Dallas region.

The Fed’s Beige Book is published eight time per year, about every six to seven weeks in advance of the meeting of the Federal Open Market Committee (FOMC).