WASHINGTON - The economy showed broad-based improvement in November as the holiday shopping season began briskly, and consumers continued to buy more homes and cars, the Federal Reserve reported yesterday.

The Fed report was released as members of the economic advisory panel of the Public Securities Association said they expect the Fed to begin tightening credit next year, probably by late winter or early spring, to prevent an increase in inflation.

"Reports were generally more optimistic than those of this summer," the Fed said in its so-called "beige book," which is based on surveys of businesses conducted by the 12 Fed regional banks. Information in the report was collected before November 29.

"Retailers in several districts reported that the holiday shopping season got off to a good start over the long Thanksgiving weekend with sales at or exceeding expectations," the report says.

The survey is more upbeat than the results contained in recent beige book reports and follows a string of other reports that indicate economic growth has accelerated in recent months.

Manufacturing as well as residential and commercial real estate strengthened, by varying degrees, in November, the report says. Meanwhile, few signs of upward pressure on inflation appeared, the report adds.

"With the exception of some construction-related occupations, businesses generally commented that wage increases were modest and stable, while they said that prices of raw and intermediate materials as well as final goods were rising slightly in some areas," the report says.

Weather-related crop damage caused agricultural prices to rise in some regions, while higher lumber prices were seen as "driving up new home prices" in other areas, the report says.

Information in the report is used by the Federal Open Market Committee in setting monetary policy. The next meeting of the FOMC comes on Dec. 21, and some analysts expect officials will adopt a policy directive leaning toward an increase in short-term rates.

"People are fully expecting the Federal Reserve to raise interest rates, and so the only question is whether the Fed will raise rates as much as expected," said Robert Giordano, director of economic research for Goldman Sachs & Co., in a briefing for reporters in New York.

Giordano served as co-chairman of an 11-member panel of PSA economic advisors, which issued a forecast calling for continued moderate growth next year with virtually no change in inflation. The panel predicted that both real gross domestic product and consumer prices will rise 3%. The Fed and the Clinton Administration have similar forecasts.

Inflation could be cut another notch to 2 1/2% if the drop in oil prices sticks, Giordano said. That might postpone a Fed tightening, he suggested, but it would not stop the Feding to disposable income.

The PSA panel members expect short-term rates to rise by 50 to 75 basis points, pushing 90-day Treasury bills to 3.5% in June and 3.6% in December.

Long rates are not expected to increase much. The panel forecast that the yield on the Treasury 30-year bond will be 6.3% by the end of the year.

The bond market is already priced in anticipation of higher short-term rates, Giordano said, and therefore "would likely not deteriorate in the face of some tightening in Fed policy." Moreover, he added, if the yield curve stays steep, investors will probably continue putting money into stock and bond funds.

The PSA panelists predicted that interest rate sectors of the economy such as housing, capital spending, and consumer spending on durable goods will sustain growth next year. However, tight federal budgets, continuing downsizing by corporations, and a weak trade sector are expected to hold back the economy.

According to the Fed's beige book, housing continued to improve markedly in November, and commercial real estate showed some signs of a much-awaited turnaround.

"Residential real estate markets were once again noted as a source of strength in most district economies, while commercial real estate markets have begun to show a few signs of improvement," the report says.

New construction of retail space was cited in several regions, while residential builders in other areas complained that they could not keep pace with demand for new units, the report added.

Loan demand was also reported as being stronger in November. "Banks in most districts said that overall loan demand improved modestly, with all reporting stronger demand in at least one sector," the report says. Commercial lending remained weak in California and the New York district, the report adds.

California and the general reluctance of business to do much new hiring were cited as two persistent weak spots in the economy, the report says.

"Commentary on conditions in three districts - Boston, New York, and San Francisco - was more mixed, with particular weakness indicated in reports from California," the report says. "Although business conditions are seen as improved in many industries, employment gains remain muted, with continued reports of defense and aerospace cutbacks.PSA Economic ForecastMacroeconomic indicators(*) 1993 1994 Gross Domestic Product 2.8 3.0Consumer Price index 3.0 3.0Personal Consumption 3.3 3.0Non-residential Fixed Investment 10.8 7.3Housing Starts (millions) 1.3 1.4State and Local Government Spending 1.8 2.4Merchandise Trade Deficit (current, in billions) $120 $136Unemployment Rate 6.9% 6.4%Federal Budget Deficit (fiscal year, in billions) $255 $238 (*) Inflation adjusted year-over-year percentage change unlessotherwise specified.([dagger]) Rate expressed uncler current Bureau of LaborStatistics survey procedure. June 1994 Dec. 1994 3-month Treasury Bill 3.5% 3.8%30-year Treasury Bond 6.2 6.330-year Home Mortgages 7.0 7.2Municipals (Bond Buyer Index) 5.3 5.4

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