Economic growth was "moderate to strong" in most parts of the country during October and November, with only scattered signs of bigger wage increases and mostly steady prices, the Federal Reserve said yesterday in a summary of its latest survey of economic conditions.
Retail sales slowed somewhat last month but then "picked up significantly . . . over the Thanksgiving weekend, and retailers expressed confidence that the brisker pace of sales will continue throughout the holiday shopping period," according to the report, which is based on information from the Fed's 12 regional reserve banks.
Except for the housing sector, in which both sales and construction were falling modestly in several Fed districts, there was little evidence of the slowing of growth Fed officials have been hoping to see. The policymakers have raised their target for overnight interest rates in three quarter-percentage-point steps since the middle of the year to produce such a slowing and thereby keep inflation from increasing.
The report--known as the "beige book," for the color of its cover--was prepared for use by the policymakers at their next meeting, on Dec. 21. Even with scant evidence of any slowing from the 5.5 percent growth rate of the third quarter, there is a nearly unanimous expectation among financial analysts that the officials will not raise rates again at the upcoming session for two reasons.
First, and most important, the meeting falls only 10 days before the end of the year, and what within the Fed is called the "century date change," a reference to potential year 2000 problems. Fed officials expect little if any disruption as the clocks in computers click over to 2000, even if some unaltered older ones treat the new year as 1900. But in the absence of any economic or financial development requiring an immediate rate increase--and there was no hint of one in the beige book--most of the officials would prefer not to roil financial markets with such an action so close to the end of the year.
The second reason is that some of the policymakers would prefer to wait longer to see whether their earlier moves are beginning to slow growth to a more sustainable level. With the Fed's credibility as an inflation fighter quite high, these officials believe they can wait for more information without the risk of a sudden burst of inflation. That's particularly true since the nation's current inflation picture remains relatively benign except for price increases related to this year's sharp run-up in world oil prices.
On the other hand, Fed Chairman Alan Greenspan and some other policymakers have expressed serious concern that growth must slow to prevent tight U.S. labor markets from becoming even tighter and eventually generating inflationary wage increases. Thus, many analysts believe that if there aren't clearer signs of slower growth in the next two or three months, the Fed will raise rates again, either at a policymaking session at the beginning of February or at one in March.
Yesterday's survey summary said the reserve banks found that "labor markets remain tight in all districts. The pace of wage and salary increases did not appear to be accelerating generally, although there were some reports of larger recent salary increases in some industries and some regions."
Employers in the Richmond district, which includes the Washington-Baltimore area, "noted substantial wage increases recently." In addition, the use of signing bonuses has spread as firms seek to attract needed workers at a time when unemployment nationally is at only 4.1 percent, the lowest in nearly 30 years.
The summary also said manufacturing activity increased in most of the Fed districts, as did commercial construction, though office vacancy rates have increased in a few areas. "Residential construction activity was mixed around the nation, with more regions experiencing slowdowns than increases," a pattern that included a sharp drop in the New York Federal Reserve district, it said.
Banks across the country told the Fed that demand was down for new-home mortgages and for refinancing old ones, but other consumer lending was rising. "Lending to businesses has risen in some districts but declined in others," it added.
REGIONAL ECONOMIC ACTIVITY
Highlights from the Federal Reserve's survey of nationwide economic conditions:
* Kansas City, Mo.: Economy held steady. Retail sales declined but are expected to be strong through the holidays.
* Chicago: Although economy remained strong, it expanded at a slower rate than earlier in the year.
* Boston: Economy continued to expand at a moderate pace.
* New York: Consumer prices appeared stable. Housing market remained tight.
* Richmond: Retailers reported stronger sales in October and November. Employment growth remained moderate.
* Dallas: Economy expanded at a slightly faster pace than previously reported. Demand for business services was strong.
* San Francisco: Solid economic expansion reported. Upward pressure on wages was modest overall.