Fed Sees Slow, Steady Growth on Horizon
The economy kept growing moderately between September and November with little or no sign of wage and price pressures flaring up, the Federal Reserve Board said Wednesday.
The Fed’s latest “beige book” summary of national economic activity appears to suggest that slow but steady expansion, rather than an acceleration, lies ahead, so there would be little need for interest rate rises to dampen inflation risks.
“Moderate economic growth continues to be reported in nearly all Federal Reserve districts,” said the summary prepared by the Philadelphia Fed for the Dec. 17 meeting of the central bank’s Federal Open Market Committee, which plots interest rate strategy.
The Fed report, based on interviews with businesses in all 12 Fed districts conducted before Nov. 23, did not reveal strong concern that either wages or prices were rising so rapidly as to pose a threat to the 5 1/2-year-old economic expansion.
It said skilled workers were in short supply across the country, yet there was no widespread pickup in wage demands. Similarly, retail prices remained stable despite more costly raw materials in some regions.
“With the economy not doing anything particularly differently from what it was doing six weeks earlier . . . there is no reason to expect anything out of the Fed soon in the way of tightening” by raising rates, said economist Kevin Harris of MCM MoneyWatch in New York.
The Dec. 17 meeting of the policy-setting committee is the final one this year. Recent reports showing surprisingly strong construction spending and a manufacturing surge had caused some speculation that growth might be picking up after a slow third quarter.
The annual rate of growth in total goods and services output, measured by gross domestic product, decreased sharply to 2% in the third quarter from 4.7% in the second quarter.
Most analysts anticipate only a modest pickup in the pace of expansion for the fourth quarter and heading into 1997.
Analysts said the key to the economy’s vigor lies in whether consumers, who fuel two-thirds of national economic activity, spend lavishly or frugally during the holiday shopping period from Thanksgiving through Christmas.
The Fed summary said retailers were “modestly optimistic” about holiday sales but did not expect a boom in business. It said price discounting was increasing in Boston, New York, Philadelphia and Cleveland as merchants kept inventories in line with sales.
Retailers in the Boston, New York and Philadelphia Fed regions were expecting gains in holiday sales ranging from 2% to 6% over last year.
“In St. Louis, Kansas City, Dallas and San Francisco, the season is expected to be strong,” the regional Fed banks reported.
The previous beige book, issued Oct. 30, similarly noted tight labor markets. But the latest summary said strong hiring did not seem to be translating into big wage demands.
