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Federal Reserve Survey Says Manufacturing Strengthened But Risks to Growth Also Rising

A man pushes his way through a winter snowstorm in Atlantic City, N.J., Thursday, Jan. 4, 2018. A massive winter storm swept from the Carolinas to Maine on Thursday, dumping snow along the coast and bringing strong winds that will usher in possible record-breaking cold. (AP Photo/Matt Rourke)
AP/Matt Rourke
JOHN CARNEY

The Federal Reserve’s latest report on economic conditions sees growth going from modest-to-moderate to slight-to-moderate, a highlighting that the downside risks are rising.

The Fed report, known as the beige book, also found that manufacturing activity had strengthened. But 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 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.” Previously, the growth was typically described as modest-to-moderate.

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 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 were 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.

–The Associated Press contributed to this report.

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