Fed Survey Shows More Businesses Are ‘Less Optimistic’ About Economic Outlook

January 16, 2019, 10:45 PM UTC

A closely watched survey of U.S. businesses by the Federal Reserve shows some companies were “less optimistic” in their economic outlooks as a tight labor market, higher trade tariffs, and rising interest rates weighed on the minds of many business owners.

The Fed’s beige book is based on anecdotal information about the economy that is collected by the 12 regional Fed banks. The latest beige book, which surveyed companies through Jan. 7, showed that “firms were struggling to find workers at any skill level” in all of the districts surveyed. That helped lead to “moderate gains” in wages in most areas.

“Outlooks generally remained positive, but many Districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty,” the report said.

Trade tariffs imposed on foreign goods by President Trump also added to rising prices in some districts. Some farms and agriculture companies in the Chicago region also noted that “payments have been disrupted by the government shutdown. The shutdown also slowed the release of government reports on agricultural market conditions, leading to greater uncertainty for market participants.”

The survey indicated that inflation is less of a threat to the U.S. economy than the risk of an economic slowdown. Fed Chairman Jerome Powell has said the central bank will take a “patient” approach to rate hikes this year, a shift from a more hawkish stance last year. While manufacturing activity continued to grow last month, it did so at a slower pace.