The Fed has pointed tocontinued strong jobs gains and robust consumer spending, whilefinancial markets have been shaken by slowing global growth, atightening of financial conditions caused by interest-rate hikes,trade disputes and the partial U.S. government shutdown. (Photo:Shutterstock)

(Bloomberg) –The still-strong U.S. economy showed signs ofslowing in recent weeks amid declining optimism, though mostregions continued to show modest to moderate growth, a Federal Reserve survey showed.

“Outlooks generally remained positive, but many districtsreported that contacts had become less optimistic in response toincreased financial market volatility, rising short-term interestrates, falling energy prices, and elevated trade and politicaluncertainty,” according to the report, released Wednesday inWashington.

The centralbank's Beige Book economic report, basedon anecdotal information collected by the 12 regional Fed banksfrom late-November through Jan. 7, showed manufacturing and energyexpanded at a slower pace in most districts, while non- financialservices cooled in a few districts.

The report, prepared by the Chicago Fed, comes amid tensionbetween the mostly positive outlook for the U.S. among centralbankers and many economists, and more pessimistic views expressedin recent weeks by investors. U.S. stocks had their worst December since theGreat Depression.

Labor gains

The Fed has pointed to continued strong jobs gains and robustconsumer spending, while financial markets have been shaken byslowing global growth, a tightening of financial conditions causedby interest-rate hikes, trade disputes and the partial U.S.government shutdown.

The Beige Book offered something for both camps. “All districtsnoted that labor markets were tight and that firms were strugglingto find workers at any skill level,” the report said.

Wages gained throughout the country and across skill levels,with most districts reporting moderate pay increases, the reportsaid. A majority of districts reported “modest to moderate”increased in overall prices.

Meanwhile, some districts reported that growth had slowed, whileNew York said “economic activity leveled off” and Kansas Cityreported activity as “flat.”

The partial government shutdown received one specificmention in the report on the way it affected agricultural marketsin the Chicago district.

Government shutdown

In addition to disrupting payments from the federal government'sMarket Facilitation Program, the shutdown also “slowed the releaseof government reports on agricultural market conditions, leading togreater uncertainty for market participants.”

Fed policy makers have responded to the gloomier investor viewsby saying they would be patient in considering further rate hikes,a shift in tone that many have interpreted as signaling apause.

Economic fundamentals, however, remain strong. Unemployment was3.9 percent in December and wages rose by a healthy 3.2 percent in2018. Consumer-price increases have remained subdued.

After excluding volatile food and energy components, the Fed'spreferred gauge of inflation rose just 1.9 percent in November overthe prior year.

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