Fed Report Notes That Economy Continues to Improve

Economic activity in the United States continued to improve over the last month, helped by the manufacturing and retail sectors, but the disaster in Japan and higher energy prices created new uncertainty about the outlook, according to a survey of the Federal Reserve’s 12 districts released on Wednesday.

The central bank report on economic activity, called the beige book, reported a “steady improvement” in manufacturing, often including hiring, and at least 10 districts cited “slight gains” in consumer spending.

Economic improvement was mostly described as moderate by many districts, according to the data collected up until April 4.

In highlighting manufacturing and retail, the latest report was similar to one released in March, which said the economy expanded at a “modest to moderate” pace as those sectors grew in all but a few regions of the country.

The report released on Wednesday also said that labor markets in many districts showed improvement. In the Boston, Chicago, Kansas City and Richmond districts, the Fed said some companies were concerned about their ability to attract certain types of skilled workers. In the Philadelphia and Cleveland districts, meanwhile, some firms said they still said they preferred to hire temporary, rather than permanent, workers.

While it focused on the major sectors of the domestic economy, the beige book also took into account global events, like the recent earthquake, tsunami and nuclear crisis in Japan.

At least seven districts noted actual or expected disruptions to sales and production as a result of the disaster in Japan.

That included a Richmond car dealer who reported restrictions on ordering certain cars colored with paints from Japan.

March was also a month of some of the highest commodity prices since September 2008. Unrest in the Middle East also took its toll. Natural resource businesses in Atlanta reported increased uncertainty as a result on outlooks for investment and hiring, the report said.

In Dallas, many companies, especially those in high-tech manufacturing, said uncertainty about events in Japan and the Middle East would hit their business and could harm profits.

The Fed report said that Japanese tourist visits to Hawaii fell, while in Boston, manufacturers that used electronic components were concerned about supply-chain disruptions.

In Minneapolis, a logistics consulting firm noted an increase in demand because companies were adjusting to disruptions caused by the disaster in Japan.

While the report provides a roundup of economic activity, it also serves as a tool to anticipate whether there will be any changes in Fed policy.

The report said, for example, that wage pressures were described by most districts as weak or subdued and that higher commodity costs were putting increasing pressures on prices.

“Energy prices were cited most often, but raw materials in general were an increasing concern of businesses,” the report said.

The ability to pass through cost increases varied. There was generally less resistance to price increases in the manufacturing sector than there was in retail or construction, where weak demand was a limiting factor, the report said.

John Canally, an economist for LPL Financial, said that for the fourth consecutive month, the report raised some concern about pricing pressures. But he concluded that it did not appear to be enough for the Federal Open Market Committee, the policy-making arm of the Federal Reserve, to change its monetary policy later this month.

“I don’t think they are even going to signal it,” said Mr. Canally. “You need widespread wage price pressure.”

“If the trend continues the way it has continued, by June they might have enough evidence to say we are seeing wage pressures bubble up and maybe we need to start thinking about taking away some stimulus,” he said.

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