Fed: Economy is solid, but wage growth is "modest"

WASHINGTON - The Federal Reserve reported Wednesday that the economy was growing at a moderate pace at the start of the year, with the majority of business contacts optimistic about prospects for 2018.

In its latest "Beige Book" survey of business conditions nationwide, the Fed said that wages were rising at a modest pace. Some Fed districts were seeing a broader range of industries giving pay raises, especially in areas where employers are having a harder time filling positions.

As of December, hourly earnings were growing at a rate of 2.5 percent, according to the Labor Department. With the nation's unemployment rate at its lowest level in more than 17 years, that remains below the pace of wage growth that many economists expected to see.

Still, many experts think a healthy labor market is likely to moderately boost worker pay this year, a boon for the econoomy.

"The wage increases -- current and future -- are [and] will be supportive for the consumer," Jennifer Lee, senior economist with BMO Capital Markets, said in a note.  

While 11 of the Fed's 12 regions described growth as modest or moderate, the Dallas region reported robust growth compared to 2017, led by strength in a number of sectors including manufacturing.

With the unemployment rate at a 17-year low of 4.1 percent, the Fed report found businesses in most districts dealing with tight labor markets and difficulties finding qualified workers in a number of sectors. The report said the labor shortages were constraining economic growth in some cases.

The Fed's report will be used to guide discussions at the central bank's next meeting on Jan. 30-31. The Fed in December signaled that it will boost rates three times in 2018. However, some economists believe the central bank will need to accelerate rate hikes this year to keep inflation in check.