The economy walks in baby steps

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The Federal Reserve says the nation’s economy was moving forward but at a mixed, baby-steps pace from early April through late May. The Fed’s Beige Book survey suggests growth returned after a contraction in gross domestic product that was reported by the Commerce Department for the first three months of the year.

Release of the survey comes in advance of the central bank’s policy-setting session June 16-17.

With the energy sector losing steam over the past year and a strong dollar adding to the expense of American-made products, the report says manufacturing was so-so over the reporting period, with more weakness around Dallas and a slump in the Kansas City region.

Because of the dollar’s strength, there was “negative impact on export sales or capital investment in segments with significant overseas exposure,” the Fed says. The slowdown in the oil and gas industry was cited for “tempered manufacturing growth in over half the districts, particularly for industries dependent on the energy sector.”

The job market, wages and inflation

Since the Beige Book is prepared for the Federal Reserve while it mulls whether to raise interest rates, what are the clues that central bankers might be getting closer to pulling the trigger? It wasn’t that long ago that many people thought the first rate increase since the recession would come this month. But there’s plenty in the Beige Book that adds to the case for delay.

For example, “slight growth in wages was reported by most districts.” That’s hardly a blinking red light on inflation. The report also notes that “districts reported stable or slightly increased prices overall during the reporting period.”

As for hiring, “Employment levels were up slightly across districts over the reporting period.”

If you’re interested in driving an 18-wheeler, it looks like there’s plenty of opportunity. “An ongoing and widespread shortage of truck drivers was noted in the New York, Cleveland, and Kansas City districts.” But rising pay was reported for restaurant and hospitality industry workers in the Richmond, Kansas City and San Francisco regions.

Slower pace of jobs creation

We’ll hear more about the job market when the Labor Department releases the May employment report on Friday. Meanwhile, payrolls services provider ADP is reporting that 201,000 jobs were added to non-farm private payrolls last month. Economists are generally looking for growth of more than 220,000 jobs in the government snapshot still to come.

In last year’s fourth quarter, the government reported an impressive average of more than 300,000 jobs being added per month. For 2015 so far, the monthly average has dipped below 200,000.

When might a rate hike come?

Our just-published survey of economists, the Bankrate Economic Indicator, finds most experts believe the Fed won’t hike rates until September. And, about a quarter of them think the rate hike might not come until next year.

Stuart Hoffman, chief economist at PNC Financial Group, says Fed officials want to see inflation rise from 1.5 or 2 percent next year.

“That’s why I do think September is a likely start although a very, very small baby-step start to the Fed raising the federal funds rate,” Hoffman says. “Even when they walk they’re going to walk in baby steps.”

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Written by
Mark Hamrick
Washington Bureau Chief
Mark Hamrick is Washington Bureau Chief for Bankrate. He is a national award-winning business and financial news journalist.