WASHINGTON — The Federal Reserve says the U.S. economy was expanding in January and February, but half the country was seeing fallout from the 35-day partial government shutdown. Some manufacturers expressed worries about weakening global demand for their products and adverse effects from President Donald Trump's trade policies.
In its latest report on economic conditions around the country, the Fed said that 10 of its 12 regions reported "slight-to-moderate growth" over the past two months. Two — Philadelphia and St. Louis — reported that conditions were "flat."
The Fed report, known as the beige book, will be used when central bank officials meet March 19-20 to consider what to do with interest rates. The expectation is that the central bank will leave rates unchanged.
The Fed raised rates four times in 2018. At its January meeting, the Fed signaled that it was hitting pause on its rate hikes in light of a slowdown in global growth and the absence of inflation pressures. Many private economists believe the Fed will keep rates on hold for a number of months, perhaps only hiking its benchmark rate once this year.
The partial government shutdown, the longest in history, had an impact around the country, the beige book found. About half of the Fed's 12 districts linked the shutdown and delayed paychecks for federal workers to "slower economic activity in some sectors including retail, auto sales, tourism, real estate, restaurants" and staffing services.
Harsh winter weather in many parts of the country was also blamed for a drop-off in consumer spending at retail establishments. Bad weather and higher interest rates held back auto sales in some areas.
The Fed report found that manufacturing activity had strengthened, although numerous manufacturers expressed concerns about weakening global demand and higher costs due to the tit-for-tat tariff war that the Trump administration began last year against China.
The report found that labor market conditions remained tight, with worker shortages being reported in information technology, manufacturing, trucking, restaurants and construction. The Fed's contacts in the St. Louis area said that enrollment in some higher education programs was declining as potential students were increasingly deciding to enter the labor market rather than stay in school.
The overall economy, as measured by the gross domestic product, slowed to a growth rate of 2.6 percent in the October-December quarter. That was enough to push GDP growth for the full year to 2.9 percent. However, many economists believe growth will slow this year to around 2 percent, reflecting waning support from the 2017 tax cuts and increased government spending that Congress approved last year. Forecasters also believe that slowdowns in Europe and China will dampen U.S. growth.