The U.S. economy continued to grow “modestly” or “moderately” in nearly all regions in recent weeks, though new signs appeared that optimism has waned in some districts, a Federal Reserve survey showed.

The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through May 22, said several sectors from manufacturing to housing continued to expand slowly. Consumer spending softened, however, with many districts reporting little or no change in non-auto retail sales.

“A majority of districts reported that firms expressed positive near-term outlooks; however, optimism waned somewhat in a few districts,” according to the report, released Wednesday in Washington.

While policy makers are expected to raise interest rates in June, the survey’s findings underlined the growing tension in the U.S. economy, and among Fed officials, over seemingly contradictory signals from inflation and the labor market.

Unemployment hit 4.4 per cent in April, its lowest in a decade. Despite that, the Fed’s preferred gauge of inflation, after stripping out food and energy, rose just 1.5 per cent in the 12 months through April, the third straight month it has slowed.

Tight Labor

“Labor markets continued to tighten, with most districts citing shortages across a broadening range of occupations and regions,” the report said. Still, “most firms across the districts noted little change to the recent trend of modest to moderate wage growth.”Many firms reported offering higher wages to attract workers “where shortages were most severe.”

While costs for some commodities rose, prices, overall, “were little changed from the prior report, with most districts reporting modest increases,” the Beige Book said. Projections from Fed officials published in March put the Federal Open Market Committee on a course for two additional rate increases this year, following a hike that month. Minutes from the FOMC’s May 2-3 meeting did nothing to alter that outlook and showed officials expect to raise rates again “soon.”

In a speech on Tuesday, Fed Governor Lael Brainard agreed with that short-term outlook for policy, but also said she’s worried about the recent weak data on inflation. If the softness persists, she said, she might rethink what is the appropriate forward path for monetary policy.

The FOMC gathers again June 13-14. Investors put the probability of a hike at that meeting at almost 90 percent, according to pricing of fed funds futures contracts. Officials expect U.S. growth to rebound from the 1.2 per cent annualized pace recorded in the first quarter. The Atlanta Fed’s GDPNow tracking model sees activity accelerating to 3.8 per cent in the second quarter.

Some anecdotes from the Beige Book backed up those expectations. The Richmond Fed reported persistent labor shortages, pushing upward pressure on wages and hindering growth in some industries.

The New York Fed said economic activity had flattened in recent weeks, while Boston said only half of retail and manufacturing contacts reported year-over-year revenue gains. The Boston report added, “The outlook remained positive, with a bit of added caution.

Bloomberg News