US economy still sluggish

US economy still sluggish

Economic activity in the United States has remained flat in recent weeks, even picking up slightly in December, but a recession may be avoided, according to the Federal Reserve’s (Fed) Beige Book released on Wednesday.

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“Economic activity remains relatively unchanged from the previous report,” said the release, which is based on surveys across the 12 regions of the US central bank system.

Released two weeks before the Fed’s next monetary policy meeting, this barometer of activity covers a six-week period ending on January 9th.

“Five regions reported slight or modest gains in activity, six had no change or a slight decline, with one reporting a larger decline,” the Fed explains, adding that “contactees generally expect modest growth for the coming months.”

While the current trend is similar to that reported in the previous report released on November 30, this positive note contrasts with the feeling of “greater uncertainty or pessimism” reported back then during the survey six weeks ago.

Activity continues to be supported by “slightly rising” consumption but isn’t irrigating all sectors in the same way, the survey underscores, with “dealers reporting solid selling over the holidays” while others “point out that high inflation is hampering purchasing has further reduced consumer power, particularly those on modest incomes.”

On the employment front, however, the rise continued “at a modest or moderate pace”, with only one region reporting a fall in employment. Overall, the labor shortage still prevails.

Difficulties in hiring are also causing employers to hesitate, who are currently reluctant to give notice despite low demand. Under these conditions, the pressure on wages remains “considerable, even if five regions emphasize a trend towards relaxation”.

On the inflation side, “the pace of growth has slowed” in several regions, but retailers nonetheless highlighted “a growing difficulty in converting costs into the prices of their products”, indicating “greater price sensitivity” on the part of consumers.

While the pace of inflation has slowed sharply since mid-June, December’s level remained relatively high at 6.5% according to the CPI price index, and the Fed has already announced that further rate hikes will be needed in future meetings to bring inflation back close to its 2% target.