US economy 'slowing'

Fed policymakers will mull the Beige Book's findings

There were further signs on Wednesday that the US economy may be slowing sufficiently to avoid a further interest rate rise.

Seven out of 12 Federal Reserve district banks reported slower growth in July, according to the central bank's Beige Book report on current business conditions.

The main inflation worries result from the tight labour market, with low unemployment making the recruitment of staff increasingly difficult in many areas.

There were additional signs that the expansion was moderating in some sectors and the majority of districts

Fed's Beige Book

One staffing service contact in the Chicago area said that meeting its customers' needs for workers was "like torture".

Not only has this restricted economic activity in some areas, but the fear is that inflation may be fuelled by employers forced to pay higher wages to attract staff.

Higher wage costs may then feed themselves on to product costs and consumer spending, so pushing up inflation.

Consumer demand

So far there has been little sign of inflation as the US economy has managed to continue its longest-known period of expansion.

Technology-powered productivity growth is largely credited with creating this "goldilocks" scenario of economic growth - not too hot, not too cold.

But the Beige Book says that falling consumer demand now appeared to be restraining price increases.

Because of tough competition, US firms had been forced to absorb extra fuel costs, following the oil price rises of recent months, without passing them on to customers.

The report will play an important role in discussions when the policymakers at the Federal Reserve meet in two weeks time to decide whether to increase interest rates.

It concluded that the evidence "suggests that economic activity in all Fed districts continued to expand in June and July, but there were additional signs that the expansion was moderating in some sectors and the majority of districts."

It found that consumer spending, manufacturing and construction were all "slightly softer" in July than in May.