updated 1/18/2006 4:08:56 PM ET 2006-01-18T21:08:56

The economy chugged ahead as the new year opened with manufacturing picking up, employment improving and retail sales rising, the Federal Reserve reported Wednesday.

Major Market Indices

The housing market, however, showed fresh signs of cooling but still was in good shape, the Fed said in its latest snapshot of business activity nationwide.

The "Beige Book" survey, based on information collected before Jan. 9 and supplied by the 12 regional Federal Reserve banks, will figure into discussions at Fed policy-makers’ next meeting Jan. 31. Economists expect the Fed will bump up rates by another quarter point to 4.50 percent in its continuing efforts to keep the economy and inflation on an even keel.

It will be the last meeting for Fed Chairman Alan Greenspan, who will retire that day after 18-plus years running the central bank.

Some businesses continued to struggle with high costs for raw materials — especially construction materials. Some producers attempted to pass along some of their increased costs to customers, while competitive factors helped to restrain such behavior, the report suggested. Retail prices were mostly stable, the Fed survey said.

Stuart Hoffman, chief economist at PNC Financial Services Group, said the economic picture painted in the report suggests: “The Fed is not to the point where policy-makers are ready to call it quits.”

On the factory front, “increases in manufacturing activity were widely reported across the country,” the report said. Only the St. Louis Fed region characterized industrial activity as mixed.

Turning to labor market conditions nationwide, most Fed regions reported signs of “continued, if generally moderate, increases in employment.” The Fed districts of New York, Atlanta, Kansas City and Dallas reported evidence of stronger employment growth.

In terms of retailing, all the Fed regions — except for Cleveland — reported that their merchants saw sales rise during the holiday season. In Cleveland, however, sales were generally flat or less than at the same time a year ago.

Automobile sales, meanwhile, were “generally somewhat sluggish across the nation,” the report said.

Travel and tourism remained robust across most of the country.

But the high-flying housing market showed new signs of losing altitude.

“Many districts reported moderation in residential real-estate activity, although from a high level,” the report said. Boston, New York, Cleveland, Richmond, Atlanta, Chicago and Minneapolis reported some cooling in real-estate markets.

“While some of the hottest markets in the San Francisco district have cooled, for example, Southern California and the San Francisco Bay Area — other areas, such as Oregon and especially Hawaii, have reportedly heated up further,” the report said.

The Fed regions of Kansas City and Dallas, meanwhile, continued to see strong housing activity. And, construction and repair work remained brisk in Louisiana and Mississippi — which were hard hit by last year’s Gulf Coast hurricanes.

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