Economists have all sorts of sophisticated measures of how the economy is doing, but sometimes the best indicator results from something as simple as a shopping trip.

For Cynthia Latta, principal U.S. economist for Standard & Poor's DRI, a moment of clarity came when she went to a mall recently and didn't see a single sign advertising a sale.

"I just turned around and walked out," she said, making a mental note that the lack of customer incentives was a sign that store owners had plenty of business without cutting prices, a telltale tip that the economy continues to boom.

What Latta saw at the mall was reinforced by reams of data that show that consumers, who account for fully two-thirds of the nation's economic activity, continue to spend at a pace that is remarkable eight years into an economic expansion.

Sales of cars and light trucks are booming, as are sales at chain such as Wal-Mart Stores Inc. and Sears, Roebuck and Co. Yesterday, government figures showed that retail sales jumped a full 1 percent in May, up from just a 0.4 percent increase in April and no increase in March.

"The American consumer seems to have an insatiable appetite," said Oscar Gonzalez, an economist with John Hancock Financial Services in Boston.

As goes consumer demand, so goes the overall economy: "It's bordering on smoking," said Jim Griffin, chief economist with Aeltus Investment Management Inc. in Hartford, Conn.

This sounds like good news, but it is ominous for economists watching as Federal Reserve policymakers prepare to meet June 29 and 30 to decide whether to raise short-term interest rates to cool things down. Economists and market strategists who try to read the mind of Fed Chairman Alan Greenspan see less and less evidence that would dissuade Greenspan and his fellow policymakers from taking back some or all of the three-quarters of a percentage point by which they lowered rates last fall.

There are rumbling signs that the economy might be beginning to cool off on its own. Job growth has slowed from its torrid pace of late last year. Mortgage rates are up, which might eventually slow near-record home sales. The mortgage refinancing boom has evaporated and the momentum has gone out of the stock market, both of which could influence consumers to spend less. The latest survey by the National Federation of Independent Business shows a sharp drop-off in future hiring plans, capital spending and sales expectations among small businesses.

But these signs are mostly preliminary or ambiguous. Home sales are still booming, the job market is still tight and consumers are still spending strongly. If the economy is slowing, it's not by much. Economists liken it to going from 90 mph to 75 mph -- still too fast. The cop with the radar gun -- Greenspan in this analogy -- may not be satisfied.

The economy is growing at about 4 percent a year. Some Fed officials have indicated they would be happier with growth of about 3 percent or less.

The key question for traders and analysts is whether this economy is producing the kind of inflationary pressure that would push the Fed to raise rates. It was the surprise 0.7 percent jump in the consumer price index in April that spooked the markets and caused the Fed to announce that it was leaning toward raising rates. If that was a one-time spike, as some economists suspect, there is less of a case for a rate increase. The May CPI numbers will be released Wednesday.

Conventional economics teaches that a booming economy, a tight job market and galloping consumer demand all create pressures that boost wages and prices.

But that hasn't happened. The inflation rate has stayed unusually low -- 2.3 percent or less for the past two years -- to the delight of economists and consumers. It's not that businesses haven't tried to punch prices up -- many have, such as car-rental companies and movie theaters.

But what has been surprising is the experience of companies that tried to raise prices but couldn't make them stick. The latest example is airlines, which announced fare increases in late May, only to back off last week and offer summer discounts when figures showed passenger traffic had sagged in May.

Consumer resistance and competition have helped hold prices down. Many employers are reluctant to bid up wages to attract scarce workers. At the same time, companies are increasing productivity -- the amount produced per hour of labor -- by finding quicker, cheaper and more efficient ways to make or deliver their goods.

In Lindsay, Neb., for example, Lindsay Manufacturing can install a full center-pivot irrigation system on a farm for $35,000 -- these are huge, traveling watering systems that pivot around a center post. That's only $5,000 more than the same system cost 20 years ago, and much less than it cost back then after adjusting for inflation.

How do they keep prices down? Bruce Karsk, Lindsay's vice president of finance, said the company has used computers and industrial automation equipment to drastically reduce the amount of time and workers it takes to produce the typical irrigation system. In 1979, it took about 500 manhours. Today, the same equipment is produced in 136.6 manhours, he said.

"Basically, we've done that by improving manufacturing flow, notably welding, utilizing essentially robotic fabrication and speeding up the manufacturing process," Karsk said. "And we're not the only company out there that's done that."

Meanwhile, many companies are holding the line on wage increases, even if that means they can't lure new workers.

At Griffith Rubber Mills Inc. in Portland, Ore., a maker of rubber seals for truck and building windows, business is up 28 percent from a year ago. But low-priced Asian imports forced the company to keep prices down and squeeze profits, according to Griffith President Scott Laney.

Laney opposes a Fed rate increase, a position he shares with the National Association of Manufacturers (NAM). Laney argued that higher rates would crimp capital that now is plentiful for businesses. In his view, a little inflation could be tolerated.

"We aren't going to have galloping inflation like we had in the Carter and Nixon years," he said. "Of the 10,000 member companies at the NAM, small and medium guys, none of us are getting better prices for our products."

CAPTION: Professional shoppers Marnie Lerner, left, and Cynde Cassel are among consumers who are helping give retail sales a boost.


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