Economic activity expanded at a decent pace in the last two months, although improvements in some parts of the country and in some business sectors appeared spotty.
That was the latest picture emerging from the Federal Reserve’s nationwide survey of economic conditions, released Wednesday.
Most of the Fed’s 12 regional districts “characterized the pace of expansion as moderate, solid or well sustained,” the Fed said in its survey. However, the Philadelphia district “noted that the pace of growth had eased in May, while Boston and Cleveland observed some unevenness across sectors.”
The Fed’s survey is based on information collected before June 6. The snapshot offered by the survey is consistent with the assessment made by Fed Chairman Alan Greenspan last week that the economy is on “reasonably firm footing.”
According to the survey, retail sales were a mixed bag and while overall manufacturing activity picked up, there were pockets of softness. Inflation was fairly mild and demand for workers improved in most districts, the Fed report said.
These indicators of inflation, jobs and other economic conditions will be discussed by Federal Reserve policy-makers when they meet next, June 29-30.
Economists expect the Fed will order another quarter-point boost to short-term interest rates at that time. If that happens, it would mark the ninth increase of that size since the Fed began to tighten credit in June 2004.
“I think we’ll see the Fed remain on a measured path of modest rate increases at least through the summer,” said Scott Brown, senior economist at Raymond James Financial.
The Fed is trying to wean the economy off extraordinarily low interest rates. Before the Fed’s rate-raising campaign began, a key short-term rate was at a 46-year low of 1 percent. That rate is now at 3 percent. With the economy recovered from the 2001 recession and on solid footing, it doesn’t need the bracing tonic of extra-low rates.
While the Fed in its previous survey talked about intensifying inflation pressures, in its latest report it said “overall price pressures were moderate.”
A government report, also released Wednesday, showed that consumer prices dropped by 0.1 percent in May, the first decline in 10 months as energy costs retreated.
For consumers, though, the toll of high energy costs, can still be felt, the Fed survey suggested. In Cleveland, Philadelphia, Kansas City and Dallas, “high gasoline prices had a negative impact on retail sales,” the Fed report said.
Cool weather also was mentioned as a factor in the mixed reports on retail sales, the survey said.
Tourism and the hospitality business in most Fed regions showed solid growth in the last two months, the Fed report said. Tourism remained “exceptionally strong” in New York City. The Fed districts of San Francisco, St. Louis and Atlanta also reported brisk business.
In manufacturing, most districts reported activity expanding. The Atlanta and San Francisco districts said defense contracts helped spur new orders for factories.
Several districts, however, “noted that production had slowed or leveled off,” the Fed said. In Cleveland, while some big-ticket goods production was improving, steel production was softer, the report said. A number of Fed regions cited varying degrees of weakness in automobile production.
The majority of Fed districts said manufacturers are concerned about high costs for materials used in production, especially energy.
Oil prices surged to a closing high of $57.27 a barrel in early April. They had retreated somewhat last month, but are now above $56 a barrel.
On the housing front, activity remained positive overall. But there were reports of some slowing in activity in a few markets, the Fed said.