It was a worrying sign that the hitherto stalwart U.S. consumer was hesitating to spend. The service sector accounts for roughly 80 percent of U.S. economy and a serious slowdown in consumption would be a tough burden to shrug off.

The Kansas City Fed allowed several reporters to join its visit to the Rocky Mountain Chocolate Factory on Tuesday afternoon. Like all of the 12 regional Federal Reserve banks, the Kansas City Fed conducts regular field trips to talk with local businesses, synthesizing the information and feeding it into the debate over interest rate policy back in Washington.

Anecdotal information from business contacts forged in communities all over the country is also systematically collected and published in the Fed's Beige Book, which gives policy-makers early warnings on changes in the real economy way before these show up in national data.

A critical prop to consumer spending is the level of employment. But as businesses lay off workers to protect profit-margins against mounting input costs, U.S. unemployment has crept up to 5.5 percent and many see it going higher.

As a franchise-based operation that earns a royalty from retail sales, Merryman said Rocky Mountain Chocolate struggles to pass higher costs on to its franchise network. That fact was duly noted by Kansas City Fed President Thomas Hoenig who, as a member of the Fed's interest-rate setting committee, always worries about inflation.

But as a result, the chocolate maker has shrunk its workforce to 165 from 220 a year ago; a tough blow for the local community where Rocky Mountain is an important employer.

It might not pay starting salaries as high as nearby Wal-Mart, said Emilie Wilson, an employee of 20 years who was dipping clusters of nuts into molten chocolate. But she got to clock more hours a week than at the retail giant, and she found the overtime in the peak summer months most welcome.

Elsewhere on the factory floor, where workers tend conveyor belts of flowing candies beneath pipes carrying molten chocolate, the job benefits can be very tangible.

"I gained 20 pounds in the first six months," complained Bonita Ratliff, who has worked with Rocky Mountain for nine years and now runs the internet ordering department, as she explained the art of making 'Rockypop'.

(Editing by Chizu Nomiyama)