U.S. econ­omy sees steady growth, but wage in­creases lag


WASHINGTON — The U. S. econ­omy grew at a steady pace in late May and June, and hir­ing was solid, yet the im­prove­ments weren’t enough to ac­cel­er­ate wage or price growth.

The Fed­eral Re­serve said Wed­nes­day that the econ­omy ex­panded in 10 of its 12 dis­tricts. It grew just slightly in the St. Louis and Philadel­phia dis­tricts. Arkansas is in the St. Louis district.

The anec­do­tal in­for­ma­tion in the Fed’s sur­vey, known as the Beige Book, is used to sup­ple­ment its eco­nomic data and will be con­sid­ered when Fed of­fi­cials next meet July 25-26.

The re­port sug­gests that the econ­omy is still largely healthy and hasn’t been dis­rupted by the four in­ter­e­strate in­creases the Fed has im­ple­mented in the past 18 months. Man­u­fac­tur­ing out­put, con­sumer spend­ing and home sales are solid in most of the coun­try, though con­sumers reined in spend­ing in Philadel­phia and At­lanta. Auto sales weak­ened in half the dis­tricts, the Fed said, af­ter sales reached a record high na­tion­wide in 2016.

In­fla­tion in the St. Louis district re­mained mod­er­ate, but low com­mod­ity prices are still be­ing re­ported, the re­port from the Fed­eral Re­serve Bank of St. Louis said. Con­tacts in Arkansas told Fed of­fi­cials that some farm fields had yet to dry out from re­cent flood­ing and that many would be re­planted with soy­beans be­cause “other crops

plant­ing win­dows has passed.”

Fed Chair­man Janet Yellen said in con­gres­sional tes­ti­mony Wed­nes­day that the cen­tral bank plans to con­tinue grad­u­ally rais­ing in­ter­est rates. She pointed to solid hir­ing and ris­ing house­hold wealth — re­sult­ing from strong home price gains and a higher stock mar­ket — as fuel for on­go­ing growth.

While the re­port found that many busi­nesses were rais­ing pay to at­tract more work­ers, over­all the pace of in­creases re­mained at a “mod­est to mod­er­ate pace,” the Fed said. Typ­i­cally, when the un­em­ploy­ment rate falls to low lev­els, busi­nesses raise pay more quickly to com­pete for a smaller sup­ply of work­ers.

The un­em­ploy­ment rate is

at 4.4 per­cent, near a 16-year low. Yet the gov­ern­ment re­ported last week that av­er­age hourly pay rose just 2.5 per­cent in the past year. The last time un­em­ploy­ment was at this level, wages were ris­ing at roughly a 4 per­cent rate.

Economists point to a range of fac­tors lim­it­ing pay raises. The num­ber of older work­ers re­tir­ing has been in­flated by the baby boom gen­er­a­tion, and they are be­ing re­placed by younger, lower-paid em­ploy­ees. Many em­ploy­ees, scarred by the 2008-09 re­ces­sion, are too cau­tious about de­mand­ing raises. Busi­nesses are also re­luc­tant to raise prices to cover the cost of higher pay.

In­fla­tion was largely in check in most dis­tricts, the re­port said, and even weak­ened a bit in sev­eral dis­tricts. Na­tion­wide, in­fla­tion has slipped in re­cent months, fall­ing fur­ther be­low the Fed’s tar­get of

2 per­cent. That has caused some economists to ques­tion the Fed’s fo­cus on rais­ing rates, a step that is usu­ally taken to ward off higher prices.

Yellen said at the con­gres­sional hear­ing that in­fla­tion has weak­ened mostly be­cause of tem­po­rary fac­tors, such as cheaper wire­less pric­ing plans. The Fed gen­er­ally tar­gets 2 per­cent in­fla­tion as a hedge against de­fla­tion.

Most an­a­lysts ex­pect that Fed of­fi­cials will lift rates one more time this year. They also ex­pect the Fed to sell some of its bond hold­ings, which could push up longer-term in­ter­est rates.

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