U.S. economy is improving but energy costs are a drag, Fed says

The U.S. economy continued to improve over the last month on gains in manufacturing, but firms are feeling the effects of higher energy and raw material costs, the Federal Reserve said 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 said.

The anecdotal summary of economic conditions looked unlikely to move the Fed away from its policy 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 Fed districts before April 4.

The Fed said that most districts described wage pressures as “weak or subdued” but higher commodity costs were widely reported to be pushing prices up.

“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.

Retail sales improved slightly in most districts, except Boston, which reported mixed sales, and Richmond, Va., 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, Mo., Dallas and San Francisco markets was reported as weak. But Philadelphia and Atlanta reported that brokers saw signs that conditions are starting to improve.