Fed Finds Growth Is Continuing
The economy headed into the spring season with solid momentum, helping to generate more employment opportunities and keep factories humming, the Federal Reserve reported Wednesday.
Overall economic activity continued to expand into early March even as the housing market flashed fresh signs of cooling after a red-hot, five-year stretch of record-high sales, the Fed said in its new snapshot of business activity around the country.
Thus far, the strengthening labor market is translating into modest wage gains for the average worker in most of the Fed regions, the report said. Fed officials closely monitor wages -- as well as the prices of goods and services -- for insight into the nation’s inflation climate.
In general, consumer prices also are rising at a modest pace even though businesses are coping with high energy prices and rising costs for other materials, such as cement, lumber and copper, the Fed said.
The survey is based on information supplied by the 12 regional Federal Reserve banks. The information for the survey was collected before March 6. It will figure into discussions at the Federal Reserve’s next meeting to examine interest rates on March 27-28.
That meeting will be the first for Federal Reserve Chairman Ben S. Bernanke, who took the helm Feb. 1. He succeeded Alan Greenspan, who retired after more than 18 years running the central bank.
Many economists predict the Fed will boost short-term interest rates by one-quarter of a percentage point to 4.75 at that meeting to keep the economy and inflation on an even keel. The Fed under Greenspan has been tightening credit for nearly two years.
Richard Yamarone, economist at Argus Research, said the Fed survey would justify another rate increase.
“Inflation pressures are rising, but at a subdued pace,” he said.
Although economists have different views on how many more rate increases will be ordered by the Fed in the coming months, most believe that the central bank’s rate-raising campaign probably will come to a close sometime this year.
Deciding when to stop tightening credit will be one of Bernanke’s first challenges. If he stops too soon, inflation could flare up. If he waits too long, the economy could be hurt.
Looking at the labor market, “employment continued to increase in most locations and in many sectors of the economy,” the Fed survey said.
The Fed survey also said that “a shortage of qualified workers for skilled positions in finance, construction and manufacturing industries resulted in more rapid increases in pay for those workers.”
