Slower growth, rising prices seen in Fed report

The country slogged through slower economic growth and rising prices during the summer, packing a double whammy to people and businesses alike.

The Fed’s new snapshot of business conditions, released Wednesday, also underscored the challenges confronting Federal Reserve Chairman Ben S. Bernanke and his colleagues as they try to get the economy back on track.

Many economists predict that the Fed will probably leave a key interest rate alone at its next meeting Aug. 5, given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market. On the other hand, the Fed isn’t inclined to lower rates because that would aggravate inflation.

The report “supports our notion that the Fed is firmly stuck on the horns” of a policy dilemma, said T.J. Marta, a fixed-income strategist at RBC Capital Markets.

Information from the Fed’s 12 regional banks around the country suggested that “the pace of economic activity slowed somewhat,” the Fed reported.

The San Francisco Fed bank said the regional economy, which includes California, “experienced little or no growth” and “upward price pressures remained severe for food and energy-intensive items but were moderate otherwise.” Labor costs “eased further.”

Consumer spending -- the economy’s lifeblood -- was reported as “sluggish or slowing” in nearly all of the Fed regions, although the government’s tax rebate checks spurred sales for some items, especially electronics. Sales at many other stores, particularly for housing-related goods, were typically characterized as “weak or falling,” however.

Looking ahead, “the outlook for retail activity was also generally downbeat,” the Fed report said.

Auto sales were characterized as “almost uniformly weak” across all Fed regions. Sales were dismal for gas-guzzling sport utility vehicles, trucks and some minivans.

On the manufacturing front, activity declined in many Fed regions. Production of housing-related goods, such as construction equipment, wood products, home furnishings, and heating and cooling systems were particularly hard hit.