The U.S. economy stalled in recent weeks, with hiring and inflation slowing and access to credit narrowing, the Federal Reserve said in its Beige Book survey of regional business contacts.
"Overall economic activity was little changed in recent weeks," the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. "Several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity."
"Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing," the Beige Book said.
The report marks a step down from the tone of the previous Beige Book — published in early March just before Silicon Valley Bank's failure — which showed an economy that remained resilient though with growing doubts about the rest of the year.
The Beige Book likely reinforces the chances that Fed policymakers will pause their run of interest-rate hikes following an expected quarter-point increase at the next gathering May 2 to 3. It also may add to concerns that the economy is slipping into recession, an outcome forecast by Fed staff economists at the last policy meeting in March.
Consumer spending, which accounts for two-thirds of the U.S. economy, "was generally seen as flat to down slightly," the Fed said. Wages remained elevated but showed some moderation and the labor market showed signs of loosening up, according to the report.
The report, put together by the Richmond Fed, draws from anecdotal information collected by the institution's 12 regional banks through April 10.
The collapse of SVB in early March spurred financial-market turmoil and concern about contagion across the banking sector.
Assessing Impact
Those worries have calmed in the past few weeks following emergency measures by the Fed and other regulators to shore up the sector. Central bank officials have since turned to assessing the impact of potentially tighter lending conditions on the wider economy, with the Beige Book giving an early sense of the effects.
Many districts said contacts reported lower lending volumes and even reduced deposits at banks. The San Francisco Fed, where SVB was based, said lending activity fell "significantly," though outflows from smaller banks had stabilized following some deposit reductions in March.
Some Fed officials, though in the minority, have signaled that the tightening in credit conditions following the collapse of SVB and others may be enough to get the economy where it needs to be for inflation to return to the Fed's 2% goal. A larger group of policymakers has said that still-high inflation means more work needs to be done.
Labor Picture
The labor picture was mixed across the districts, with some reporting an increased supply of workers and moderating wage gains and others saying companies were still having a hard time filling positions.
The outlook for the rest of 2023 was unchanged, with two districts reporting more pessimism about the future. In the Boston Fed's district, Cape Cod businesses forecast a summer season to match last year's record-setting one.
Higher prices of basic necessities including food limited some consumers' spending power, Cleveland Fed businesses reported. Nonprofits in several districts also reported increased demand for their services amid higher prices. The higher cost of living increased burnout and mental-health strain among workers, the San Francisco Fed reported.
Real estate activity remained subdued amid high interest rates. Firms in the New York Fed district reported higher mortgage delinquency rates and lower supply of housing as homeowners held on to low-rate loans.
