WASHINGTON – The economy flashed signs of slower growth heading into the summer but that didn't help alleviate inflation concerns. Stung by rising costs for energy and other materials, some businesses felt inclined to boost their prices.
That was the picture emerging from a Federal Reserve survey, released Wednesday, of the business climate around the country.
Although overall economic activity did expand from the middle of April to early June, "there were some signs of deceleration," the Fed survey said.
In four of the 12 Fed districts surveyed — Atlanta, Kansas City, Richmond and San Francisco — economic activity moderated, the report said. Seven districts — Boston, Chicago, Cleveland, Dallas, Minneapolis, New York and St. Louis — said economic growth was about the same as in the Fed's last report, released in April. Only one district reported an improvement in economic conditions: Philadelphia.
Consumers — a key force shaping overall economic activity — did ring up sales, but they also showed some signs of caution. Some Fed districts reported retail sales were slowing or weaker than anticipated at discount stores or to lower-income customers, who have especially felt the pinch of lofty gasoline prices.
"High gasoline prices were cited by a few districts as changing purchasing patterns or clouding the outlook for sales," the Fed survey said. "A couple of districts also said that rising interest rates were a concern."
The Fed's survey was taken after the latest run-up in energy prices. Oil prices zoomed to a record high of $75.17 in late April. They have retreated somewhat and are now hovering above $68 a barrel. Gasoline prices, meanwhile, have topped $3 a gallon in many areas.
The survey also was taken after the Federal Reserve boosted interest rates to a five-year high to help fend off inflation. The central bank's action on May 10 marked the 16th rate increase since June 2004.
The Fed's snapshot is based on information supplied by 12 regional Federal Reserve banks and collected before June 5.
On the inflation front, the survey said "concerns about high or rising costs were expressed by business contacts across much of the country." In some Fed districts this led to higher selling prices for manufacturers.
Higher prices were reported for items including fuels, metals, petroleum-based products and many building materials, such as concrete, steel, cooper and zinc, the survey said.
Some firms in the Philadelphia district said suppliers were including automatic price escalation in contracts to cover future increases in the cost of materials. A number of districts reported increases in fuel surcharges.
Although businesses were more likely to pass along some of their increased costs to each other in the form of higher prices, they were a bit more restrained in jacking up price tags for consumers.
"Just three districts — Boston, Dallas and Philadelphia — reported that retailers are having success raising retail prices," the Fed report said. Some other districts reported little change in retail prices.
The snapshot of economic conditions nationwide will figure into discussions at the Fed's next meeting to examine interest rates on June 28-29.
Federal Reserve Chairman Ben Bernanke last week called rising inflation unwelcome and pledged to take action to snuff it out. The message, which sent stocks around the world tumbling, was seen as a strong signal that interest rates will go up again later this month.
For the first five months of this year, consumer prices were rising at an annual rate of 5.2 percent — well ahead of the 3.4 percent increase registered for all of 2005, the Labor Department reported Wednesday.
On other matters, the Fed report noted that the housing market showed fresh signs of cooling and that there was a slowing in loans to consumers, particularly for mortgages and home equity loans.
Manufacturing activity continued to expand but there were more reports of softening. "Areas of weakness included production of agricultural equipment and autos," the report said.
On the jobs front, there were some reports of shortages of skilled workers, such as truck drivers, some types of engineers, financial analysts and oil and gas workers.