The Federal Reserve says the U.S. economy was expanding in January and February, but half the nation was seeing fallout from the 35-day partial government shutdown. Some manufacturers expressed worries about weakening global sales of their products and consequences from President Donald Trump’s trade policies.
Fed survey discovers economic fallout from shutdown and tariffs
In its latest report on economic conditions throughout the country, the Fed declared that 10 of its 12 regions reported “slight-to-moderate growth” over the past 60 days. Two – Philadelphia and St. Louis – reported that conditions were “flat.”
The Fed report, referred to as beige book, is going to be used when central bank officials meet March 19-20 to take into account how to handle interest rates. The expectation is that the central bank will leave rates unchanged.
The Fed raised rates four times in 2018. At its January meeting, the Fed signaled it’s hitting pause on its rate hikes considering a slowdown in global growth and the absence of inflation pressures. Many private economists believe the Fed will keep rates on hold for several months, perhaps only hiking its benchmark rate once this year.
The partial government shutdown, the longest throughout history, had an effect throughout the country, the beige book found. About 50 % of of the Fed’s 12 districts linked the shutdown and delayed paychecks for federal workers to “slower economic activity in a few sectors including retail, auto sales, tourism, real estate, restaurants” and staffing services.
Harsh winter weather in several areas was also blamed for a drop-off in consumer spending at retail establishments. Bad weather and higher interest rates held back auto sales in certain areas.
The Fed report discovered that manufacturing activity had strengthened, although numerous manufacturers expressed concerns about weakening global demand and higher costs as a result of tit-for-tat tariff war that the Trump administration began last year against China.
The report found that labor market conditions remained tight, with worker shortages being reported in information technology, manufacturing, trucking, restaurants and construction. The Fed’s contacts in the St. Louis area stated that enrollment in a few higher education programs were declining as potential students were increasingly choosing to enter the labor market instead of stay in school.
The overall economy, as measured via the gross domestic product, slowed to a rate of growth of 2.6% in the October-December quarter. That was enough to push GDP growth for the full year to 2.9%. However, many economists believe growth will slow this year to about 2%, reflecting waning support from the 2017 tax cuts and increased government spending that Congress approved last year. Forecasters also feel that slowdowns in Europe and China will dampen U.S. growth.
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