WASHINGTON – A strengthening in the U.S. economy gathered steam in recent weeks as consumers kept shopping and the long-ailing manufacturing sector flexed a little muscle, the Federal Reserve (search) said Wednesday.
"Reports from the 12 Federal Reserve districts (search) indicate the economy continued to improve in July and August," the Fed said said in its "beige book (search)," an anecdotal snapshot of economic conditions across the country.
The assessment, based on information gathered from an extensive network of business contacts, said 11 of the Fed's regions saw economic gains over the summer, with consumer and manufacturing activity rising in most areas.
The Fed said five of its districts mentioned the massive mid-August electricity blackout, which affected much of the Northeastern United States, as well as a large swath of the Midwest, but the effects "were generally small."
"Even where firms were closed for several days, affected contacts suggest they are not anticipating difficulties in making up for lost production or shipments," it said.
While the report buttressed other recent data that suggest the economy is starting to move forward fairly briskly, it also underscored a persistent problem -- a lack of jobs.
"Labor markets remain slack across the nation," the beige book said, adding that where there were any gains in wages, they were modest. At the same time, an increasing tab for health care pushed up overall labor compensation costs.
However, a senior Fed official said jobs creation would come if the economy strengthened as policy-makers expect, even though so far businesses had been able to meet rising demand by increasing their efficiency rather than their hiring.
"It seems to me that with growth rates in the economy as high as what we're expecting in the second half of the year and in 2004, you will still see employment pickup" despite strong advances in productivity, San Francisco Fed President Robert Parry (search) told a group of business economists. Still, he cautioned against hoping for "huge" gains in employment.
Even though Fed officials expect the economy to pick up steam, they have said they are more worried about already low inflation moving lower than they are about prices rising.
The beige book, which was readied for Fed officials to use at their next meeting on interest-rate policy on Sept. 16, underscored the lack of widespread inflation pressures.
"Although districts note price increases for natural gas, gasoline, insurance, tuition, semiconductors, and pharmaceuticals, most product prices are reported to be stable or lower, as businesses say they cannot pass along these or other cost increases to their customers," it said.
The report lent further to evidence the beleaguered manufacturing sector is on the mend, with 10 of 12 districts saying factory activity was improving slightly to moderately.
"Various districts report solid or strengthening demand for autos and auto parts, high tech equipment, semiconductors, pharmaceuticals, and building materials," it said, adding the need for factory workers appeared to be firming.
"A majority of districts indicate scattered reports or projections of longer work hours and selective hiring, and several report that layoffs are becoming less frequent."
The report also said U.S. consumers -- the stalwarts of the economy -- raised their spending "at least moderately" in most regions, although the New York area said there was some softening from July to August, in part due to the blackout.
Most regions reported strong housing markets but weakness in commercial real estate, although the Fed said even the commercial market showed "scattered signs of improvement."
The impact from a sharp rise in mortgage rates over the past couple months was mixed, with home lending declining in some regions, but rising in others as buyers rushed to secure loans before rates moved even higher.
The beige book was based on information collected before Aug. 25.