WASHINGTON -- The economy is continuing to expand at a brisk pace in most parts of the United States amid scattered signs of rising wage and price pressures, the Federal Reserve said yesterday.
The Fed's assessment, contained in the "beige book" survey of business conditions in the 12 regional bank districts, is the most explicit to date in citing a variety of anecdotal evidence that inflationary pressures are building because of continued strong growth in the economy.
The Fed's report will be used by members of the Federal Open Market Committee when they meet Aug. 16 to decide whether to change monetary policy. In his recent testimony to Congress, Fed chairman Alan Greenspan said policymakers would place a lot of emphasis on anecdotal reports of price trends in deciding whether to raise short-term rates again.
While some districts reported a few signs that business activity is slowing down, "business activity in most areas is continuing to expand at a solid pace," the beige book said.
The report added that businesses surveyed said "a broad range" of materials were going up in price, including finished steel and steel scrap, copper, wood, paper and paperboard, building materials including brick and glass, and wool and other textile products.
U.S. automakers and steelmakers recently announced a round of price increases that will take effect next year, including some that are the biggest in years.
"Energy prices have also moved up a bit in the past month or so," the report said. Moreover, construction and some manufacturing industries reported that higher materials costs were pushing up prices of finished goods.
"Several districts are reporting a tightening in labor markets that, in some cases at least, has resulted in faster wage growth," the Fed report said, although it noted, "few districts see any broad-based wage pressures as a result."
Still, the report cited signs of labor shortages in a number of skilled occupations, including machinists, technicians, clerical workers, construction workers, and truck drivers. Some districts also reported shortages of some entry-level positions.
Greenspan, in his testimony, also said labor shortages were showing up in some occupations.
Recent statistical reports have sent a confusing picture on what is going on in the economy, with some portraying strength While others suggest growth is slowing. On Tuesday, the Commerce Department reported that single-family home sales tumbled to a two-year low in June.
Other reports indicate that the manufacturing sector is still strengthening, and some analysts say they expect to see improving foreign economies push up demand for U.S.-made products.
The report issued yesterday by the Fed said that retail activity picked up again after a lull in the spring. Most districts reported that sales of autos, building materials, and apparel had improved since their last report in June.
Rising interest rates have softened residential construction and sales in most regions, but "loan demand appears to be fairly strong," the Fed said.
"Commercial and industrial borrowing has improved in many regions, and consumer lending is particularly active," the Fed said. "Even in California, where the business trend remains flat, a moderate expansion in lending activity is reported to be underway."
William Sullivan, senior vice president for Dean Witter Reynolds Inc., said the Fed's findings portrayed an economy with considerable momentum. "It's a momentum that may not have been worrisome a year or two ago, but it's worrisome now as the margin for spare capacity diminishes," he said.
Sullivan added: "If people were looking for a referendum of weakness that would deny the Fed's ability to tighten, you don't see it here."
Alan Gayle, senior vice president for Capitoline Investment Services in Richmond, Va., said he expects FOMC officials to refrain from raising rates on Aug. 16. But with the economy growing above its long-term average, more tightening will probably come after Labor Day, Gayle predicted.
At the White House, economic adviser Robert Rubin told reporters he had not yet seen the beige book. But he said based on what he has heard from his contacts with business leaders around the country, companies are having a hard time raising prices in a competitive global economy with plenty of resources.