By Gabriel T. Rubin
U.S. economic activity grew modestly in July and August as inflation cooled, but consumers showed increasing signs of strained finances, according to a Federal Reserve report released Wednesday.
Consumer spending was stronger than expected during the summer, driven by a surge in spending on tourism and travel, according to the central bank’s regular survey of the economy, known as the Beige Book. But business contacts in some districts said that customers are relying more on credit to support their spending as their excess savings have dwindled. A separate report from the New York Fed released last month found that credit-card balances exceeded $1 trillion for the first time in the second quarter of 2023.
Price growth has slowed throughout the country, according to most of the Fed’s 12 regional bank districts. Profit margins also are falling with businesses saying it is increasingly difficult to pass along costs to more price-sensitive customers.
Price pressures continued cooling in July, according to the Labor Department’s consumer-price index, with both overall and core CPI, which excludes volatile food and energy categories, rising a mild 0.2% that month. Annual inflation was 3.2% in July, down sharply from a recent peak of 9.1% in June 2022 but still above the Fed’s target of 2%.
Hiring has broadly slowed and employers in several districts said that retaining employees has gotten easier, especially in transportation and manufacturing. But others reported that they are still having trouble finding certain types of skilled labor to fill particular jobs. Wage growth remained elevated, many businesses said, though they expect pay increases to cool more in the remaining months of 2023.
U.S. employers added 187,000 jobs in August, the Labor Department said last week. The unemployment rose to 3.8% as more people joined the workforce.
Write to Gabriel T. Rubin at [email protected]
Corrections & Amplifications
This article was corrected at 3:47 p.m. ET to show that U.S. economic activity grew modestly in July and August, according to a Federal Reserve report. The original version incorrectly said U.S. economic activity grew in June and July.
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