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Economy growing, but at slightly slower rate

By ASSOCIATED PRESS
Published July 27, 2006

WASHINGTON - The economy logged decent but slower growth in the early summer as some consumers tightened their belts. Despite continuing high energy prices, the overall inflation climate remained moderate.

That snapshot of America's business climate emerged from the Federal Reserve Board's latest survey of economic conditions nationwide, released Wednesday.

Although all 12 Federal Reserve districts indicated continued economic growth during June through the middle of July, there were "numerous individual reports pointing to evidence that the pace of growth has slowed," the survey said.

Most districts reported that consumers had less of an appetite to spend, resulting in weaker sales for some merchants. In some cases, high gasoline prices were blamed for squeezing household budgets and forcing some people to spend less or cut back on shopping.

Sales were "relatively weak among 'big box' retailers and other low-price outlets," the survey found. However, sales were healthy for luxury shops.

The report is based on information supplied by 12 regional Federal Reserve banks and collected before July 17. Thus, the survey captures the latest run-up in energy prices. Oil prices surged to a record closing high of $77.03 a barrel on July 14. Gasoline prices also have marched higher, exceeding $3 a gallon in some areas.

Even though elevated energy prices have stung people and businesses, the report suggests the nation's inflation climate hasn't gotten out of hand.

"Increases in the prices of final goods and services generally remained modest," the survey found. "Manufacturers' and retailers' ability to pass cost increases on to final prices varied."

For instance, companies that provide transportation services have been able to apply fuel surcharges and thus have been able to significantly increase their prices in some markets. However, other types of companies indicated "more limited pricing power and smaller increases" in the prices charged to customers.

On another inflation observation, the survey said that increases in workers' base wages and salaries "generally remained moderate overall." Wage growth is good for workers but if compensation grows rapidly for a long period of time and is not blunted by other economic forces, it can lead to inflation problems.

Federal Reserve Chairman Ben Bernanke told Congress last week that it is the Fed's hope that the slowing economy will eventually lessen inflation pressures. That prompted Wall Street to rally.

The economy, which grew in the first quarter of this year at a 5.6 percent pace, the fastest in 2 years, is slowing to a pace of around 2.5 percent to 3 percent in the second half, according to projections by private economists.

The snapshot of economic conditions nationwide will figure into discussions at the Fed's next meeting, Aug. 8.

[Last modified July 27, 2006, 01:05:45]