Richmond Fed president says the economy is set to grow a bit faster than most expect.

WASHINGTON -- The economy seems to be poised for a mild pickup in growth while inflationary pressures remain in check, a top Federal Reserve official said yesterday.

J. Alfred Broaddus, president of the Federal Reserve Bank of Richmond, said he is slightly more upbeat than most economists, who are looking for growth of 23/4% in the third quarter, 3% in the fourth quarter, and then 23/4% again next year.

"My own guess is that we'll see a little bit stronger growth going forward," Broaddus told a luncheon held by the National Economists Club.

Broaddus, who has been the head of the Richmond Fed since Jan. 1, sits with the policy-setting Federal Open Market Committee but does not have a vote.

The Fed bank president said that consumer spending, business investment on computers and other equipment, housing construction, and growth in exports may all do better than expected.

Overall, he predicted, conditions seem to be set for the economy to expand at least into 1995.

Broaddus' comments came after the government released reports showing that August retail sales were up a modest 0.2% while the consumer price index rose 0.3%, slightly more than most analysts expected.

Broaddus called the consumer price report "a little bit of a disappointment." Inflation now seems to be running at about 3% a year, he said, "but I believe conditions are ripe to move it down a little bit further."

But economists said the reports did not change their expectations that inflation will remain stable at about 3% and that retail sales will, at best, show a modest upward trend throughout the rest of the year.

The 0.3% rise in the consumer price index in August resulted primarily from gains in housing, food, and clothing prices, the Labor Department reported. Economists on average had expected a 0.1% to 0.2% advance in the CPI, following a 0.6% drop in the August producer price index reported last week.

The core CPI, excluding food and energy prices, also advanced 0.3% in August. These were the largest gains in the consumer price index and core index since April, when both measures increased 0.4%, according to department figures.

"The CPI report does not change our outlook on inflation," said Daryl Delano, senior economist of Cahners Economics Inc. in Newton, Mass. His firm is still forecasting consumer level inflation of 3% or slightly less for the year, he said.

But Delano said the consumer price report shows broad-based gains in prices in August, and that makes him a little more concerned about what happens in subsequent months. "Nothing has suggested we can forget about the possibility of underlying inflation pressures building," he said.

All categories of consumer goods prices increased in August, with the exception of energy prices and "other goods and services," which include tobacco prices, the department said.

Apparel and upkeep prices posted the biggest gain in August, 0.9%, while food, housing, and entertainment all increased 0.3%. according to government data. Food and housing prices were unchanged in July.

Peter Greenbaum, an economist with Smith Barney, Harris Upham & Co., said it should not surprise anyone that food and housing prices moved up after being relatively stable for the last two months. He predicted that the inflation rate would stay around 3% through the rest of this year.

Energy prices fell 0.5% in August, after no change in July and declines in May and June, the Labor Department said. The category of other goods and services also declined 0.4%, primarily from a 2.9% drop in tobacco prices, much smaller than the decline seen on the producer level so far, the department said.

In the first eight months of the year, the consumer price index increased at a 2.9% annual rate, mirroring the 1992 inflation rate, and the core CPI rose at a 3.3% pace, also on par with last year, the department said.

The 0.2% rise in retail sales in August was helped by relatively strong auto sales, the Commerce Department said. This was the fifth straight monthly advance in retail sales, and July's increase was revised up to 0.3% from an earlier estimate of 0.1%.

Durable goods sales rose 0.6% in August, while building materials surged 1.8% and sales at auto dealers rose 0.7%, the department reported. Excluding autos, retail sales gained 0.1% in August.

"If anything I'm a little more encouraged on the retail side," said Dan Seto, an economist with Nikko Securities Co. International. "We're probably looking at better consumer spending in the third quarter."

Advance sales reports from department stores indicate that retail sales are likely to increase again in September, Seto said. But he said that retail gales are unlikely to increase much without a significant improvement in employment.

"New jobs remain the big uncertainty," Seto said. "Consumers could go back into their funky mood again by Christmas.

Greenbaum also predicted that retail sales are likely to inch upward in the remaining months of the year. But he said that growth in sales has been slowing since the 1.9% gain in April.

"At best, we need to see tiny steps forward in retail sales, and I think we will see that," Greenbaum said. He forecast between 2.5% and 3% real growth in the second half of the year.

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