Economic activity in recent weeks got back on track after a rough start to the year, with the labor market gaining strength and facing worker shortages in some areas, according to the Federal Reserve’s latest survey of regional conditions.
Manufacturing, consumer spending, tourism were all seen as bright spots, while housing was mixed around the country. It was the second-straight “beige book” survey, which covered a period from late May through early July, to report “moderate” or “modest” expansion in all districts.
“This report is consistent with our expectation of a pickup in growth in the second quarter after a weather-related contraction” at the start of the year, wrote Barclays economist Michael Gapen. Amid signs of an improving economy, many economists have upgraded their estimates for second-quarter growth. Most projections now hover around a 3% annual pace, after a first-quarter contraction of 2.9%.
Stronger growth was seen in the New York, Chicago, Minneapolis, Dallas and San Francisco regions, with “modest” expansion in the rest of the country. In the Boston and Richmond, Va., districts, local economies were still expanding but at a slower pace than seen earlier in the year.
The labor market was a particular source of strength in the report, with some employers reporting they were having a hard time finding truck drivers as well as skilled construction workers. Net job growth has exceeded 200,000 for five straight months, boosting spending at retailers.
In congressional testimony Tuesday and Wednesday, Fed Chairwoman Janet Yellen referenced the job-market improvements. She defended keeping interest rates low but gave some hints to earlier-than-planned rate hikes if the labor market continues its quick improvement.
“If the labor market continues to improve more quickly than anticipated by the [Fed],” she told the Senate Banking Committee on Tuesday, “then increases in the federal-funds rate target likely would occur sooner and be more rapid than currently envisioned.” The Fed has held its benchmark short-term rate near zero since late 2008.
The report comes ahead of the Fed’s policy-making committee meeting set for July 29-30.
Fed officials cited numerous good signs for the economy, inducing a robust corn and soybean crops in the Chicago area, stronger attendance at Broadway theaters in New York, increased reservations for campgrounds in Montana and higher starting salaries for San Francisco area workers.
Negative signs included slower sales for Philadelphia-area furniture retailers and sluggish casino revenue in Mississippi.
The view of the housing market was also weaker, with the Boston, New York and St. Louis banks reporting that home sales were down from last year’s levels. Construction increased in several districts, but demand for properties was tepid in parts of the country.
Across the country, some indicators of future demand were stronger. Fed officials found growth in professional services such as technology, health-care consulting, advertising and engineering. Transportation was also up since the previous survey, led by demand for trucking and rail services.
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