Moderate Growth Continuing, Fed Reports

The economy is expanding moderately in much of the nation, with prices remaining stable despite tighter labor markets, according to the Federal Reserve Board’s latest survey of economic conditions, released Wednesday.

“Economic activity generally expanded at a moderate rate in many districts in June and July, although several reported that growth was more brisk,” a summary of the survey of regional business conditions said.

“Labor markets tightened further, but only scattered wage pressures were noted,” according to the survey. “Prices for most goods were stable, although reports indicated that lumber and some agricultural prices rose.”

Many of the survey participants said competition made raising prices impossible.

The survey, conducted by the Fed’s 12 district banks and known as the beige book because of its cover, will be used by central bank policymakers when they meet Aug. 19 to consider monetary policy.

Although the Federal Open Market Committee met in May and July, it has not raised short-term interest rates since nudging them up a quarter percentage point in March, to 5.5%. It was the first increase in two years.

That boost came as the economy raced ahead at a 4.9% annual growth rate. Growth slowed to a 2.2% rate in the April-June quarter, but analysts expect it to regain some of its first-quarter strength in the second half of the year.

Few signs of substantial price hikes have emerged, and many analysts believe the market committee will leave rates unchanged for now as it awaits more economic data.

Wednesday’s report boosted the bond market, which saw its first drop in interest rates in four sessions. Bonds’ upturn helped propel the Dow Jones industrial stock average up 71.77 points to close at 8,259.31, another record.

After driving the economy during the January-March quarter, consumer spending slowed the following three months but was picking up speed by midyear. Consumer spending accounts for two-thirds of economic activity.

“Most [Fed] districts reported stronger retail sales since the last report,” the survey said. “Only Kansas City had weaker activity.”

Economist James Glassman of Chase Securities Corp. in New York said the results were a confirmation that the nation’s favorable combination of low unemployment and low inflation isn’t likely to end soon. Nothing in the findings should prompt Fed officials to raise short-term interest rates at the Aug. 19 meeting, he said.

“A modest rebound in consumer spending seems to be underway, but that’s probably just a return to a more normal rate of increase” after an almost-flat second quarter, Glassman said.

The beige-book summary said another strong part of the economy is commercial real estate, including in the San Francisco district, which covers the Western states. Activity in that sector “strengthened across much of the country as vacancy rates declined further and rents rose.”

Crops appeared to be in good shape, but warm, dry weather hampered development in districts including San Francisco, Cleveland, Chicago and St. Louis.