Dive Brief:

• Capital spending plans fell during the first quarter and hiring slumped to a level that usually coincides with recession, the National Association for Business Economics said Monday.
• “The U.S. economy is slowing down as fewer panelists report rising employment and capital spending,” Julia Coronado, NABE president and president of MacroPolicy Perspectives, said in a statement, describing an April 4-12 survey of NABE members.
• Rising wages and material costs during the first quarter eroded gains from sales growth, crimping profit margins, NABE said. Still, “the NABE survey panel remains optimistic regarding sales — this in the face of a slowing economy,” Carlos Herrera, chief economist at Coca-Cola North America, said during a webinar.

Dive Insight:

The Federal Reserve on Wednesday also flagged an easing in the unusually tight U.S. labor market, a leading cause of high inflation since the start of the pandemic.

“Employment growth moderated somewhat this period as several districts reported a slower pace of growth than in recent Beige Book reports,” the Fed said in the Beige Book survey of businesses across its 12 districts that was concluded on April 10.

“Contacts reported the labor market becoming less tight as several districts noted increases to the labor supply,” the central bank said. “Additionally, firms benefited from better employee retention, which allowed them to hire for open roles while not constantly trying to back-fill positions.”

Unemployment fell to 3.5% last month as employers hired 236,000 workers, the smallest increase in two years but still strong by historical standards.

The tight labor market has sustained high price pressures. The Fed during the past year has raised the main interest rate more aggressively than at any time since the early 1980s but has yet to achieve a steady decline in core inflation toward its 2% target.

Core inflation excluding food and energy, a signal for future price pressure, rose 5.6% last month on an annualized basis compared with 5.5% in February, fueling expectations that the Fed on May 3 will raise the main interest rate by a quarter percentage point after a two-day meeting. The inflation measure increased 0.4% in March, a slight decline from 0.5% the previous month.

The share of respondents to the NABE survey reporting an increase in the prices they charge fell to 40% compared with 46% in January, the association said.

Still, the proportion of respondents who expect to push up prices during the next three months increased to 38% from 35% early in the first quarter. Also, the share of NABE panelists who expect material costs to fall during the next three months declined compared with January, the NABE said.

“The panel believes there is more work to be done against inflation,” Herrera said.

By one measure, monetary policy tightening has succeeded by prompting a pullback in capital spending plans. The share of survey respondents who reported increasing capital spending fell to 22% from 31% in January.

Fed economists, citing banking system turmoil, advised policymakers that a mild downturn is likely to begin later in 2023, discarding their December forecast for sustained growth, according to minutes of a March 21-22 meeting.

NABE survey respondents see a 50-50 probability of a downturn, Herrera said. “It is not a foregone conclusion that we are going to go into a recession — our panelists are evenly divided.”