updated 7/26/2006 3:10:09 PM ET 2006-07-26T19:10:09

The economy logged decent but slower growth in the early summer as some consumers tightened their belts. Despite continuing high energy prices, the overall inflation climate remained fairly moderate.

Major Market Indices

That snapshot of America's business climate emerged from the Federal Reserve Board's latest survey of economic conditions nationwide, released Wednesday.

Although all 12 Federal Reserve districts generally indicated continued economic growth during June through the middle of July, there were "numerous individual reports pointing to evidence that the pace of growth has slowed," the survey said.

Most districts reported that consumers — a major force in shaping overall economic activity — had less of an appetite to spend, resulting in weaker sales for merchants. In some cases, high gasoline prices were blamed for squeezing household budgets and forcing some people to spend less or cut back on shopping.

Weak sales at ‘big box’ retailers
Sales were “relatively weak among ‘big box’ retailers and other low-price outlets,” the survey found. However, sales were healthy for luxury shops, whose more affluent customers' aren't as strained by high energy bills.

The report, referred to as the Beige Book, is based on information supplied by 12 regional Federal Reserve banks and collected before July 17. Thus, the survey captures the latest run-up in energy prices. Oil prices surged to a record closing high of $77.03 a barrel on July 14. Gasoline prices also have marched higher, exceeding $3 a gallon in some areas.

Even though elevated energy prices have stung people and businesses, the report suggested that the nation's overall inflation climate hasn't gotten out of hand.

“Increases in the prices of final goods and services generally remained modest,” the survey found. “Manufacturers' and retailers' ability to pass cost increases on to final prices varied.”

For instance, companies that provide transportation services have been able to apply fuel surcharges and thus have been able to significantly increase their prices in some markets. However, other types of companies indicated “more limited pricing power and smaller increases” in the prices charged to customers.

Wages remain ‘moderate overall’
On another inflation observation, the survey said that increases in workers' base wages and salaries “generally remained moderate overall.” Wage growth is good for workers but if compensation grows rapidly for a long period of time and is not blunted by other economic forces, it can lead to inflation problems.

Federal Reserve Chairman Ben Bernanke told Congress last week that it is the Fed's hope that the slowing economy will eventually lessen inflation pressures. That prompted Wall Street to rally.

The economy, which grew in the first quarter of this year at a 5.6 percent pace, the fastest in 2 1/2 years, is slowing to a pace of around 2.5 percent to 3 percent in the second half, according to projections by private economists.

The snapshot of economic conditions nationwide will figure into discussions at the Fed's next meeting, Aug. 8. For two years, the Fed has been boosting interest rates to fend off inflation. Some economists think the Fed might leave rates alone at the August meeting. Others think another bump-up is in store then but after that the Fed will move to the sidelines for a while to assess economic activity.

The Fed's goal is to push up rates enough to quell inflation but not so much as to stall economic growth.

Slowing housing market
The Fed survey said that another factor restraining overall economic activity is a housing market that is slowing after five straight years of boom times. "Activity in residential real-estate markets cooled in most parts of the country," the report noted. That has translated into “more limited” gains in housing prices, the report added.

Against that backdrop, the demand for home mortgages as well as for other consumer loans has weakened in most of the Fed's districts.

Slower activity on the consumer end, however, is being cushioned by solid business activity, including gains in manufacturing and in commercial real-estate construction, the Fed survey suggested.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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