Growth Remains Modest, Fed Report Says

As they prepared to consider possible interest rate changes, Federal Reserve Board policymakers were told Wednesday that U.S. economic growth remains modest with little sign of inflation at the consumer level.

In May and early June, the economy even gained in some regions, the Federal Reserve reported, while wages stayed mostly in check despite labor shortages.

“Nearly all districts report expanding activity, and several indicate the pace of growth accelerated recently,” the central bank said in its latest report on economic activity across the country.

The so-called “beige book” report, which will be used by the central bank’s policymakers when they meet next month to evaluate interest rates, initially buoyed financial markets, which have been anxious about signs of inflation that might prompt the Fed to raise rates in a bid to slow economic growth.

At the same time, the survey found little evidence of rising retail prices, despite increases for raw and intermediate goods spotted in some districts.

“Most districts continued to report tight labor markets for both entry-level and skilled workers, although indications of rising wages remained scattered,” it said.

Some analysts believe the central bank’s Federal Open Market Committee will vote to hold rates steady when it meets on July 2-3. Others believe rates will be raised to slow the economic expansion and defuse any inflationary explosion.

“I certainly sense no urgency,” said economist David Jones of Aubrey G. Lanston & Co., a New York government securities dealer. “The economy’s fairly strong, it’s basically fully employed, but so far there’s no significant acceleration in wage and price pressures.”

The beige book covers the six weeks from April 30 through June 11. It was similar in tone to the previous report, issued May 8, which also said the economy was growing moderately with the pace quickening in some of the Fed’s 12 districts.

In the Western district, which covers California, the Fed said economic activity remained strong. It cited higher residential real estate sales and construction starts, while consumer spending grew moderately. Manufacturing activity picked up in the West, particularly among suppliers of building-related products.

The strongest interest was in the beige book comments on wages and prices, but the report did not sound alarm bells on inflation.

It said prices were rising for some raw and intermediate goods--especially building materials, oil products and grains--but they were not being passed on to consumers.

“Evidence of rising prices for retail products, however, was much less widespread,” the Fed said.

Wage demands did not appear to be a problem despite worker shortages that were prompting unusual efforts to attract employees in some areas.

“Most districts continued to report tight labor markets for both entry-level and skilled workers, although indications of rising wages remained scattered,” the Fed said.

The committee--composed of the seven Fed governors and five of the 12 district presidents--probably will be back to full strength when it next meets.

The Senate is scheduled to vote today on the nominations of Alan Greenspan to a third term as Fed chairman, and White House budget director Alice Rivlin and St. Louis economist Laurence H. Meyer to fill vacancies on the Fed board.

The Fed cut rates three times during the seven months ended in January to stimulate what appeared to be a faltering expansion. Since then, however, the economy has rebounded, accelerating concerns about inflation.