The pace of economic activity was slowing in some parts of the country by midyear, the Federal Reserve Board said Wednesday, but so were inflation pressures.
The central bank's latest coast-to-coast survey of economic conditions, known as the "beige book," was prepared for the Fed's policy-setting Federal Open Market Committee, which meets in two weeks to consider interest-rate policy. The survey indicates several areas of weakness.
"The upper Midwest, Southeast and West continue to expand," says the summary prepared by the Federal Reserve Bank of St. Louis, one of 12 regional Fed banks that surveyed business people in their areas. "Other areas are experiencing little or no growth."
In the Fed's San Francisco district, growth picked up a bit, although signs of weakness remained. Retail sales generally continued to be weak, and a drop in construction continued to hold down manufacturing production of building materials. Residential real estate and construction had a slight uptick, with the exception of parts of California. Farming has been hampered by bad weather.
Meanwhile, a Commerce Department study issued Wednesday says Nevada may be the place to live for the next decade.
The West and the South should enjoy the fastest economic growth in the next 10 years, with Nevada, Arizona and Utah expected to show the best gains in incomes, jobs and output of goods and services, the department's state projections found.
The projections update ones issued in May, 1990, and for the first time include output projections. The projections have been issued every five years since the 1960s. Previous projections covered just income, employment and population.
The department's study projects that output growth in the Rocky Mountain states will average 2.9% annually from now until 2005, 2.5% in the Southwest and Southeast and 2.4% in the far West.
The District of Columbia and New York are expected to bring up the rear in personal income, job and output growth, the figures indicated.
The latest beige book is based on information collected before July 31 and it underlines softness in both retail sales and manufacturing activity.
It was more direct in suggesting the economy was slowing down, at least in parts of the country, than was the previous beige book issued June 21, which said economic activity was generally at a high level across much of the nation.
"Manufacturing, particularly the auto and construction-related industries, continues to slow in many districts," the latest summary says. Some districts said factory orders were rising and that inventories were generally considered to be at acceptable levels.
The key reason for generally lackluster second-quarter economic activity was an ongoing "inventory correction" as companies tried to adjust their production to sales in order to cut stocks of unsold goods.
The inflation threat remains subdued as business people in three quarters of the Fed districts reported rising prices for raw materials, but at a decelerating rate. Manufacturers said prices were going up for paper and wood, chemicals and some metals.
Wage demands did not seem to be a problem.
"Reports of tight labor markets come from many districts, but few report increased wage pressures," the Fed said.
The central bank lowered short-term interest rates by a quarter of a percentage point on July 6 at the conclusion of its last FOMC session, the first cut in nearly three years.
At the time, the Fed said it felt free to reverse its interest rate policy because inflation had moderated. But it has signaled its intention to move cautiously on further rate reductions, and it is far from clear that the Aug. 22 policy session will bring cheaper credit.
Consumer spending was mixed across the country at midyear. The Fed said the center of the country was doing better than other areas.
Sales of new cars were sluggish in the Atlanta, Minneapolis and San Francisco Fed districts, but they were higher than a year ago in Cleveland, Dallas and Kansas City, Mo.
The Philadelphia Fed said manufacturing orders were declining there and that some factories were cutting jobs. In Cleveland, by contrast, the economy "continues to operate at a high level" and capital goods producers were at the forefront of the economic advance. Similarly, the Atlanta Fed said economic activity there had picked up since the last beige book was issued.