By JEANNINE AVERSA
The Associated Press
Wednesday, July 26, 2006; 7:34 PM

WASHINGTON -- The economy logged decent but slower growth in the early summer as some consumers tightened their belts. Despite high energy prices, overall inflation remained fairly moderate.

That snapshot of America's business climate emerged Wednesday from the Federal Reserve Board's latest survey of economic conditions.

All 12 Fed districts generally indicated continued economic growth during June through the middle of July. Still, there were "numerous individual reports pointing to evidence that the pace of growth has slowed," the survey said.

Most districts reported that consumers, a major force in shaping economic activity, had less of an appetite to spend. That resulted in weaker sales for merchants. In some cases, high gasoline prices were blamed for squeezing household budgets and forcing some people to spend less or cut back on shopping.

Sales were "relatively weak among `big box' retailers and other low-price outlets," the survey found. Sales were healthy for luxury shops, whose more affluent customers' are not as strained by high energy bills.

The report is based on information supplied by 12 regional Fed banks and collected before July 17. Thus, the survey captures the latest run-up in energy prices. Oil prices surged to a record closing high of $77.03 a barrel on July 14. Gasoline prices also have marched higher, exceeding $3 a gallon in some areas.

Even though elevated energy prices have stung people and businesses, the report suggested that the nation's overall inflation climate hasn't gotten out of hand.

"Increases in the prices of final goods and services generally remained modest," the survey found. "Manufacturers' and retailers' ability to pass cost increases on to final prices varied."

For instance, companies that provide transportation services have been able to apply fuel surcharges and thus have been able to significantly increase their prices in some markets. Other types of companies indicated "more limited pricing power and smaller increases" in the prices charged to customers.

On another inflation observation, the survey said that increases in workers' base wages and salaries generally remained moderate overall. Wage growth is good for workers. But if compensation grows rapidly for a long period of time and is not blunted by other economic forces, it can lead to inflation problems.

Stocks, which had risen after the release of the Fed report, ended Wednesday lower. The Dow Jones industrials lost 1.20 points to close at 11,102.51.

Federal Reserve Chairman Ben Bernanke told Congress last week that it is the Fed's hope that the slowing economy eventually will lessen inflation pressures. That prompted Wall Street to rally.

The economy grew in the first quarter of this year at a 5.6 percent pace, the fastest in 2 1/2 years. But it is slowing to a pace of around 2.5 percent to 3 percent in the second half, according to projections by private economists.

The snapshot of economic conditions will figure into discussions at the Fed's next meeting, Aug. 8. For two years, the Fed has been boosting interest rates to fend off inflation. Some economists think the Fed might leave rates alone at the August meeting. Others think another bump-up is in store then but after that the Fed will move to the sidelines for a while to assess economic activity.

"The bottom line is that the Fed is not far away from the long-awaited pause in interest rates," said Brian Bethune, economist at Global Insight.

The Fed's goal is to push up rates enough to quell inflation but not so much as to stall economic growth.

The Fed survey said that another factor restraining overall economic activity is a housing market that is slowing after five straight years of boom times. "Activity in residential real-estate markets cooled in most parts of the country," the report noted. That has translated into "more limited" gains in housing prices, the report added.

Against that backdrop, the demand for home mortgages as well as for other consumer loans has weakened in most of the Fed's districts.

Slower activity on the consumer end, however, is being cushioned by solid business activity, including gains in manufacturing and in commercial real-estate construction, the Fed survey suggested.