Signs of slowing demand, including for housing, have emerged in several US regions as soaring prices have increased fears about a coming recession, according to a US Federal Reserve report Wednesday.
The US central bank has been raising interest rates aggressively to tamp down inflation pressures, hoping to avoid pushing the world’s largest economy into a downturn.
But while growth continued nationwide, “several Districts reported growing signs of a slowdown in demand, and contacts in five Districts noted concerns over an increased risk of a recession,” the Fed said in its latest “beige book” survey of business conditions.
“Most Districts reported that consumer spending moderated as higher food and gas prices diminished households’ discretionary income.”
Prepared ahead of the July 26-27 policy meeting, where the Fed is widely expected to produce another super-sized rate increase, the report indicating slowing demand could be viewed as a sign the central bank’s efforts are having an impact.
But the report also showed the ongoing issues that have plagued the economy continue to cause headaches.
Americans flush with cash have been on a shopping spree, causing demand to outstrip supply and fueling price pressures amid global shortages brought on by the Covid-19 lockdowns, as well as the more recent hit from the war in Ukraine.
“Manufacturing activity was mixed, and many Districts reported that supply chain disruptions and labor shortages continued to hamper production,” the Fed said.
Those issues are hindering energy output even as oil and gas drilling activity picked up.
“Similar to the previous report, the outlook for future economic growth was mostly negative,” the Fed said.
After months of a blistering pace of home buying that sent prices soaring, the report said, “Housing demand weakened noticeably as growing concerns about affordability contributed” to a sales decline.
The Fed started raising interest rates in March, and last month hiked the benchmark borrowing rate 0.75 percentage points — the biggest increase in nearly 30 years.
After Wednesday’s report showing consumer prices surged 9.1 percent in June, a new four-decade high, economists expect another three-quarter-point increase at this month’s meeting.