WASHINGTON -- The economy grew solidly in most regions of the country during the last two months while inflation remained stable at the retail level, according to the Federal Reserve's latest survey of businesses released yesterday.
However, the "beige book" report noted "significant price increases" for certain raw materials, including building materials. It also said that production of autos, steel, and building materials is nearing full capacity.
The beige book summarizes information about current economic conditions compiled from business surveys conducted by the Fed's 12 regional banks. It is used by the Federal Open Market Committee as a basis for discussion in setting monetary policy.
The FOMC is next scheduled to meet on May 17. Many analysts expect the committee to raise the federal funds rate, the rate banks charge each other for overnight loans, to 4% from 3.75%, at or before the meeting. If the funds rate is raised, it would be the fourth 25-basis-point increase since Feb. 4.
Retailers and manufacturers reported that "competitive pressures" are generally keeping their prices from rising. Several manufacturers said they "successfully resisted suppliers' price increases, but some have been forced to absorb the increased cost of materials," the Fed report said.
Businesses also indicated that costs for their employee health care are rising more slowly, according to the survey.
Along with stable prices, retailers reported robust sales in March and April, thanks to a rebound after severe weather during the first two months of the year and an early Easter holiday.
"Most districts indicate that higher interest rates did not reduce auto sales through mid-April, although one Chicago District auto dealer saw a sharp decline in activity as interest rates rose and customers worried about their losses in the financial markets," the report said.
Home sales were described as "brisk" in most areas, including the northeastern states and California, where sales previously were sluggish. "Through mid-April, higher interest rates appear to have generated a surge in activity, due in part to buyers' concerns that rates could rise further," the report said.
A pickup in commercial building and leasing was reported in some districts. "Office leasing activity in New York is reported to be fairly brisk," the report noted.
In several regions, banks reported "improved lending activity, with consumer lending generally characterized as stronger than business lending." Lending for new mortgages was also reported to have increased, but refinancings fell sharply across the nation.
A perennial soft spot in the economy, California, is also looking a little better. "In California, conditions remain weak, although positive signs are starting to emerge," the report said. Retail sales and tourism are seen as strong or improving in most of the region, while aerospace remains weak.
Also yesterday, the Commerce Department reported that new orders for manufactured goods grew 1.1% in March on advances in both durable and nondurable goods. This is above market expectations of about a half percentage point increase and is the seventh increase in orders in the last eight months. Orders are up 9.6% compared to a year ago.
Orders for durable goods grew 0.8%, double an estimate released last week while nondurable goods orders gained 1.4%, the department said. Meantime, manufacturers' inventories edged down 0.1% and unfilled orders inched up 0.1%.