Economic growth up slightly in early 2023, but high rates, inflation begin to bite

Economic growth up slightly in early 2023, but high rates, inflation begin to bite
© Reuters.

Yasin Ebrahim — Economic growth increased slightly in early 2023, led by “steady” consumer spending, though high inflation and higher interest rates were beginning to bite, according to the Federal Reserve’s Beige Book released Wednesday.

“Overall economic activity increased slightly in early 2023,” according to the Beige Book report based on anecdotal information collected by the Fed’s 12 reserve banks through Feb. 27.

There was an even split among districts reporting economic growth, with six seeing “little or no change in economic activity,” since the last report, and six reporting “economic activity expanded at a modest pace,” according to the report.

The growth since the start of the year was driven by consumer spending that generally “held steady,” the report suggested, though several districts flagged concerns about rising credit card debt at a time when rising rates and inflation are making a dent in consumer income.

The labor market remains tight – as demand continues to outweigh supply – with several districts highlighting the lack of available childcare as a headwind to bringing more workers into the labor force.

There were some signs, however, that firms are regaining some power in the labor market as a “few Districts noted that firms are becoming less flexible with employees and beginning to reduce remote work options,” according to the report.

Inflation pressures, meanwhile, remained “widespread,” the report said, with several districts reporting rising input costs, particularly for energy and raw materials, just as firms are “finding it more difficult to pass on cost increases to their consumers.”

Looking ahead, however, contacts “expected price increases to continue to moderate over the year,” it added.