WASHINGTON – The economy registered modest growth in the early summer, considering how consumers and some businesses were buffeted by both high gasoline prices and the sour housing market.
That's the gist of a Federal Reserve region-by-region survey, released Wednesday, which also showed the economy clearly has emerged from a rut at the beginning of the year and is now growing, albeit slowly.
On the inflation front, consumer prices continued to increase "at a moderate rate," the Fed report said. "Almost every region said that oil and gasoline prices were either rising, high or an issue," it noted. Gas prices have climbed past $3 a gallon nationwide.
Fed Chairman Ben Bernanke told Congress last week that he expects the economy to grow gradually through the course of this year and to strengthen a bit next year. He said that inflation remains the chief concern.
The biggest threat to the economy is if inflation doesn't recede as Fed policymakers anticipate, Bernanke explained, when he delivered the Fed's midyear economic assessment to Capitol Hill.
Information from the Fed survey will figure into discussions at the central bank's next meeting, Aug. 7. Economists predict that the Fed at that time will again vote to hold a key interest rate at 5.25 percent, where it has stood for more than a year.
Consumer spending -- a major shaper of overall economic activity -- continued to grow in the early summer. However, a number of Fed regions reported that high gas prices restrained purchases. And, five of the Fed's 12 regions said that retail sales of housing-related items -- such as furniture and home repair materials -- were weak or declining. Tourism reports, meanwhile, were mostly positive.
In the first three months of this year, it was brisk consumer spending -- indeed -- that prevented the economy from stalling out. Even still, the economy grew by just 0.7 percent in the January-to-March period, the worst in more than four years.
The economy has rebounded and is expected to clock in at a pace of around 3.2 percent for the April-to-June period. The government will release the second quarter's results on Friday. Growth in the second quarter will probably be powered by a revival in business investment, while consumer spending is expected to be somewhat subdued.
"Higher energy prices appear to be dampening retail sales," said T.J. Marta, fixed income strategist at RBC Capital Markets. "With strong global growth, the U.S. and global economy might not have to lean so hard on the U.S. consumer, and so the U.S. economy might be able to muscle through on strong business investments and exports," he said.
The Fed survey noted that manufacturing activity grew in most Fed regions. The Fed regions of New York, Cleveland and Chicago indicated that capital spending increased according to plans. And, reports from around the country on spending for most business services were generally positive, the Fed said. Strong gains were noted by consulting, advertising, health care, scientific and telecommunications firms.
Employment, meanwhile, continued to increase "in most locations and in many sectors of the economy," the Fed said. The nation's unemployment rate is currently at 4.5 percent, low by historical standards.
Even with the sturdy labor market, many regions described overall wage gains for workers as moderate. However, many also pointed out that there's "significant upward pressure on wages and salaries" for high-skilled workers.
The Fed keeps a close eye on wages for any clues about inflation. A rapid and sustained pickup in wages -- if not blunted by other economic forces-- can fan inflation.
The survey is based on information supplied by the Fed's 12 regional banks collected on or before July 16.
The housing slump, which started last year, continued to be felt in most areas.
Most regions said home building declined and residential real-estate activity was weak. New York, however, said housing markets were "mixed but stable." The Cleveland and Richmond regions said sales increased slightly. Reports on home prices around the country were mixed, the Fed said.
A separate report from the National Association of Realtors said sales of previously owned homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units. It was the slowest sales pace in 4 1/2 years.
Against this backdrop, banks reported that household lending declined in most regions and household credit quality "deteriorated marginally," according to the Fed survey.