Federal Reserve's Beige Book Says U.S. Economy Moderates

By Agence France-Presse The U.S. economic expansion is showing signs of moderating as consumer spending brakes, the Federal Reserve's Beige Book survey showed July 28. "Economic activity continued to expand in June and July, although several districts reported that the rate of growth moderated," said the report, drawn from the bank's 12 districts and released eight times a year. Overall, the closely watched report appeared to confirm a string of soggy economic reports for June. Consumer spending, which accounts for two-thirds of economic activity, weakened, it said. "Consumer spending moderated across much of the country in June and early July following strong increases in spending in the early spring," it said, placing some of the blame on unseasonably cool weather. The job market gained power, however. "Most districts reported strengthening labor market conditions," it said. Wage increases seemed modest, likely assuaging Federal Reserve concerns over the threat of a wage-price spiral that could require a faster increase in interest rates. Consumer prices also appeared tame despite rising cost pressures for raw materials. "Reports of rising prices at the producer level continued to be common, though increases in retail prices were only infrequently reported," the Federal Reserve said. Many manufacturers found it impossible to pass on higher costs because of intense competition, the report said. Federal Reserve chairman Alan Greenspan last week cast aside concerns that a string of soggy economic reports in June might linger, declaring a consumer-spending lull "short-lived." The markets took the comment as a sign that he is determined to keep raising interest rates. On June 30, Federal Reserve policymakers raised the target for the federal funds rate, which commercial banks charge each other overnight, to 1.25% from a 1958 low of 1%. It was the first interest rate increase in four years, aimed at removing some of the extraordinary monetary stimulus, which had been aimed at a now-redundant threat of deflation. A string of soft reports in June showed employers hired 112,000 extra workers, fewer than half the number expected, retail sales fell by a seasonally adjusted 1.1%, and U.S. industry cut output 0.3%. Nevertheless, the Federal Reserve's semi-annual report to Congress this month forecast that U.S. gross domestic product would grow 4.5% to 4.75% in the last quarter of 2004 when compared with a year earlier. Copyright Agence France-Presse, 2004