Survey by Fed Shows Growth Continuing

Most of the country appeared to manage decent economic growth in September and early October even amid soaring energy prices from hurricanes Katrina and Rita, the Federal Reserve said Wednesday.

But while residential real estate activity remained brisk, signs of slowing in the pace of price increases and sales were appearing in the West Coast and other regions, the Fed said in its latest “beige book” snapshot of business activity from the central bank’s 12 regional districts.

The report also noted signs of labor market tightening, although overall wage increases were generally still restrained.

In another economic report Wednesday, the Commerce Department reported that housing construction rose in September to the highest level in seven months, temporarily defying expectations of a slowdown.

Construction of new homes and apartments rose 3.4% last month to a seasonally adjusted annual rate of 2.11 million units, the fastest pace since February. Analysts had forecast a decline.

The Fed’s beige book survey found that “most districts described the pace of activity as moderate or gradual.”

Still, the effect from the hurricanes could be seen almost everywhere. All regions reported rising costs for energy, building materials, shipping and other items. Reports from several regions suggested that some of the increased costs were being passed along to consumers in the form of higher retail prices.

“Chicago cited price increases for pharmaceuticals and air travel. In Richmond and Atlanta, retailers and other business firms reported passing their cost increases through into their selling prices, and in Philadelphia and Dallas large numbers of business firms said they have raised or plan to raise their prices,” the Fed survey said.

Other Fed regions reported that businesses were being more restrained in raising prices. The San Francisco region -- which includes Southern California -- reported that consumer prices have remained stable, while Boston and Chicago noted that the ability of local businesses to raise prices was limited.

In the San Francisco district, “labor markets tightened further, with significant wage increases reported for selected high-skill occupational categories,” the report said. “District retail sales weakened somewhat, but service providers saw continued strong demand.”

Residential real estate activity in the San Francisco district “remained robust but slowed slightly in some areas, and commercial real estate markets improved further. District banks reported strong loan demand and good credit quality,” it said.

The beige book report was based on information collected before Oct. 11 and supplied by the 12 regional Federal Reserve banks. The report will figure into the discussions and decision-making of Fed policymakers at their next meeting Nov. 1.

Many economists believe the Fed will boost its key short-term interest rate by one-quarter of a percentage point, to 4%, at the November meeting to fend off inflation. Such a move would mark the 12th increase of that size since the Fed began to tighten credit in June 2004.

That expectation was reinforced by comments Wednesday from two Fed officials.

“My focus at this time is naturally on keeping inflation contained,” Fed board member Donald Kohn said in a speech in Pittsburgh.

Richard Fisher, president of the Fed’s Dallas regional bank, said in a speech in Houston, “I’m fully confident that the Fed will continue to do its part by containing inflationary expectations and pressures.”

Fed policymakers at their last meeting Sept. 20 suggested that inflation posed a bigger risk to the economy’s health than did the prospects of major slowdown in growth.