Federal Reserve Says Economy Headed in Good Direction, Driven by Manufacturing and Strong Retail Sales

WASHINGTON – The economy headed into the summer with strong momentum, propelled by a manufacturing rebound and consumers who eagerly went shopping and sightseeing despite high gas prices.

This picture of the economy, released Wednesday by the Federal Reserve, seemed brighter in terms of prospects for overall economic growth. Factory production was up in a majority of districts, an improvement from the previous survey that found manufacturing was slow in most Fed districts.

Consumer spending and retail sales across the country generally were up too, with luxury goods selling better than lower-end merchandise in some areas. Travel and tourism remained healthy but there was little change in auto sales.

Information from the survey will figure into discussions at the central bank's next meeting on June 27-28. Economists predict the Fed will again hold a key interest rate at 5.25 percent, where it has stood for a year. As the economy has recently flashed signs of emerging from a nearly yearlong sluggish spell, the chances of Wall Street's hoped-for rate cut have faded.

Economic growth nearly stalled in the first three months of this year, registering a pace of just 0.6 percent, the worst in more than four years. Federal Reserve Chairman Ben Bernanke and other economists predict a rebound. Estimates range from a pace of 2.3 percent to more than 3 percent in the current April-to-June quarter.

Businesses, which clamped down in the first quarter, are expected to regain their appetites to spend and invest, leading the way for the anticipated bounceback in overall economic activity. Consumers, whose spending in the first quarter prevented the economy from stalling out, are expected to be somewhat more subdued, however.

On the inflation front, more than half of the Fed's 12 districts mentioned higher energy prices were hitting both producers and consumers. "However, district reports generally did not indicate an increase in overall price pressures," the Fed said.

Bernanke and his colleagues have made clear that their biggest concern would be if inflation does not recede in the coming months as they expect.