Fed Beige Book: Economy Expanding Moderately

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The nation's employment climate improved, shoppers rang up sales and factories boosted production last month, fresh signs that the economy is chugging ahead at a respectable pace.

That was the latest snapshot of economic activity presented in the Federal Reserve's (search) survey of business conditions around the country, released Wednesday.

"The economy has continued to expand at a moderate pace," according to the survey, which is based on information collected on or before Feb. 28.

The survey also found that retail prices were "generally flat or up modestly." Some companies — hit with higher prices for fuel, steel and other raw materials — were more inclined to pass along some of these costs to customers, the survey noted.

These indicators of inflation, jobs and other economic conditions will be discussed by Fed policy-makers when they meet next on March 22.

To keep inflation and the economy on an even keel, the Fed has pushed up short-term interest rates six times — each in one-quarter percentage point moves — since June 2004. Economists are expecting another quarter-point increase at the March meeting.

One of the things economists will be closely watching at the March meeting is any sign as to whether Fed policy-makers will be sticking with or abandoning their current stance of raising interest rates at a measured, or gradual, pace.

With the job market clearly on the mend but still not back to full throttle, some economists believe that a gradual approach to raising rates will be maintained for a while longer.

On the jobs front, the Fed survey said that "labor markets strengthened in almost all districts."

Information for the survey, dubbed the Beige Book (search) for the color of its cover, is based on reports from the Federal Reserve's 12 regional districts.

Boston, New York, Atlanta, Minneapolis, Richmond, Chicago and Kansas City were among the districts reporting improvements in employment conditions.

Companies reported stronger demand for workers in financial services, legal services and freight transportation and distribution, according to the survey. New York and Cleveland noted a "dwindling supply of skilled workers to fill job openings generally," it found.

The government reported last week that the economy added a sizable 262,000 jobs in February, the most since October. The report raised hopes that the recovery in the labor market will become more firmly rooted in the months ahead.

Consumers, meanwhile, are spending sufficiently to help the economy move ahead.

Retail sales strengthened in Boston, Philadelphia, Atlanta, Minneapolis, Kansas City and Dallas, the survey said. Sales were little changed in other districts.

Clothing sold well. Some merchants said sales were somewhat weak for electronics and big-ticket goods, including cars.

The tourism business improved in most districts, the survey said. New York — among the regions reporting robust activity — attributed some of the strength to "The Gates (search)" exhibit in Central Park.

On the manufacturing front, factory activity was reported as expanding solidly in most districts.

"Defense-related production was reported as strong in the Boston, Atlanta, Kansas City and Dallas districts," the report said. "Machine tool production was described as solid by several districts. Vehicle production remained at a high level in part because of the strength in demand for heavy trucks."