The U.S. economy continued to improve over the past month on gains in manufacturing but firms are feeling the effects of higher energy and raw material costs, the Federal Reserve said on Wednesday.
While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors, and Kansas City described its economic gains as solid, the U.S. central bank said in its Beige Book summary.
Manufacturing continued to lead, with virtually every district citing examples of steady improvement, often with reports of increased hiring, the Fed added.
The anecdotal summary of economic conditions looked unlikely to move the Fed away from its policy stance of keeping interest rates extraordinarily low and completing its $600 billion Treasury bond purchase program by the end of June.
The Beige Book was based on information collected in all 12 regional Fed districts before April 4 and was compiled by the Federal Reserve Bank of Richmond.
The Fed said that most districts described wage pressures as weak or subdued but higher commodity costs were widely reported to be putting upward pressure on prices.
Energy prices were cited most often, but raw materials in general were an increasing concern of businesses, it said.
Firms' ability to pass on price increases varied across districts. Manufacturers were generally finding less resistance to price increases from their customers than retailers or the construction sector, where weak demand was a limiting factor.
The Beige Book's description of the economy sounds very much like the consensus view painted by the financial press: The recovery is gathering momentum, but rising commodity prices are stirring up anxiety. Residential real estate is having a tough spring and wage pressures are a nonissue, said Chris Low, chief economist with FTN Financial Group.
From a policy perspective, it would be difficult to write an economic assessment more in keeping with the Fed's current policy position, Low added in a note to clients.
Retail sales improved slightly in most districts, except Boston, which reported mixed sales, and Richmond, which reported weak sales. Auto sales improved in most districts, the Fed said.
Housing remains weak, with most districts reporting flat or weaker markets for single-family dwellings. Market activity was still declining in the St. Louis and Minneapolis districts, while activity in the New York, Cleveland, Kansas City, Dallas and San Francisco markets was reported as weak. But Philadelphia and Atlanta reported that brokers saw signs that conditions are starting to improve.
With commodity prices in focus, the Fed report noted mixed assessments of agricultural activity. There were varying degrees of drought in the Atlanta, Kansas City and Dallas districts. Chicago reported that some areas did not have adequate subsoil moisture to endure dry spells, but spring planting should proceed quickly.
Most districts said higher fuel and feed prices continued to put downward pressure on farm profit margins but prices for most agricultural commodities remained strong.
(Editing by James Dalgleish)