Economy Expands Despite Slowing Retail Sales

The U.S. economy continued to expand in late July and August, with growth hindered by lackluster retail sales and cooling home sales, the Federal Reserve said in a report released Wednesday.

The expansion was uneven, with several regions saying that growth had slowed.

An increase in manufacturing activity, and a consequential increase in demand for transportation services, helped blunt the negative effect of the falloff in spending, the Fed said in its latest survey of regional economic conditions, known as the “beige book” for the color of its cover.

“Consumer spending was mixed across districts and across products

Spending was “in large measure” hurt by high oil prices, Federal Reserve Chairman Alan Greenspan said Wednesday in testimony before the House Budget Committee. He said the economy had “regained some traction” after hitting a “soft patch” earlier in the year.

The beige book released Wednesday said the strength of consumer spending varied by region, with San Francisco reporting “solid” spending and New York, Chicago and Richmond, Va., calling it “softer.”

Spending was still stronger than it was a year earlier, the survey said.

Manufacturing increased in all Fed districts, led by durable goods and capital equipment, according to the beige book, which was written by the Federal Reserve Bank of San Francisco. There was strong demand for aerospace products, steel, industrial machinery and information technology.

“The generally robust activity in manufacturing boosted demand for transportation services in many districts,” the survey said. The demand resulted in bottlenecks in freight movement in some areas, including the West Coast and New York.

The employment situation was uneven.

“Several districts noted a pickup in demand for temporary service workers, including those in manufacturing, and one district [Atlanta] reported an increase in the rate of conversion of temporary workers to permanent hires,” the beige book said. “Wage increases remained modest overall.”

The Labor Department reported last week that companies added 144,000 payroll jobs in August and the unemployment rate fell to 5.4%.

“Consumer prices were generally flat or up modestly in late July and August,” the beige book said. There were “noticeable price increases for oil, natural gas, steel, lumber, cement, concrete and other building materials,” it said.