The Federal Reserve's latest report, covering early April to mid-May, reveals a continuation of modest economic growth across the nation, with varying conditions across industries and Districts. This update provides a detailed comparison to previous months, highlighting significant trends in economic activity, labor markets, and prices.
Economic Activity
National economic activity saw slight expansion, continuing the trend from previous months, but with varied conditions across sectors. While retail spending remained flat to slightly up, a reflection of lower discretionary spending and heightened price sensitivity among consumers, auto sales were roughly flat, with some manufacturers offering incentives to boost sales. Travel and tourism saw a significant boost due to increased leisure and business travel, although the outlook for the hospitality industry was mixed heading into the summer season.
Demand for nonfinancial services rose, while transportation services experienced mixed results, with increases in port and rail activity contrasted by varied trucking and freight demand. Nonprofits and community organizations reported solid demand for their services, and manufacturing activity remained flat to up, though two Districts noted declines. The ongoing trend of tight credit standards and high interest rates continued to constrain lending growth.
Housing demand saw a modest rise, with single-family construction increasing despite reports of rising rates impacting sales activity. However, conditions in the commercial real estate sector softened due to supply concerns, tight credit conditions, and elevated borrowing costs. Energy activity was largely stable, and agricultural reports were mixed, with some relief from drought conditions in certain Districts, although farm finances and incomes remained a concern.
Labor Markets
Employment rose at a slight pace overall, consistent with previous months. Eight Districts reported negligible to modest job gains, while four reported no change. Labor availability improved in most areas, with a decrease in employee turnover and an increase in employers' bargaining power. Hiring plans were mixed, reflecting a cautious approach amid weaker business demand and economic uncertainty. Wage growth remained mostly moderate, with several Districts reporting normalization to pre-pandemic rates.
Prices
Prices increased modestly over the reporting period, with consumers resisting additional price hikes, leading to smaller profit margins as input costs rose. Retailers reported offering discounts to attract customers, and many Districts observed a continued rise in input costs, particularly for insurance. However, some Districts noted price declines in construction materials and manufacturing raw materials. Modest price growth is expected to continue in the near term.
Recession Concerns
Despite the modest growth reported, many Americans believe the economy is in a recession. The Federal Reserve has not indicated that the economy is currently in a recession. A recession is typically defined as two consecutive quarters of negative GDP growth, accompanied by significant declines in economic activity across various sectors, including employment, income, and industrial production. The current economic conditions, marked by slight growth and mixed sectoral performance, do not meet this definition. However, the increased uncertainty and downside risks highlight the challenges facing the economy.
Comparison to Previous Months
Compared to earlier months, the overall economic activity showed a continuation of modest growth, with slight improvements in some sectors but persistent challenges in others. The labor market's slight gains and improved labor availability marked a positive trend, while the ongoing modest price increases indicated a gradual stabilization of inflationary pressures.
The Federal Reserve's report highlights the varied economic conditions across the nation, reflecting both progress and ongoing challenges. While the current data does not indicate a recession, the mixed outlook underscores the uncertainty and downside risks that continue to influence economic activity, labor markets, and price dynamics.