Rising fuel prices have recently pushed up many businesses' costs, turned some consumers away from big, gas-guzzling vehicles and sent gasoline refiners' profits soaring, the Federal Reserve reported yesterday.
But overall consumer prices have increased only modestly as the U.S. economy has grown in the past eight weeks, according to a summary of economic conditions compiled by the Fed's 12 regional banks.
The job market continued to strengthen, with hiring picking up "at a faster pace" in most of the 12 districts, said the report, which is compiled from the banks' surveys of local companies representing a variety of industries across the country.
But businesses generally reported "little or muted upward pressure on wages."
The findings match much of the overall economic data released during the same period, which showed the economy generally continuing to expand briskly. But the survey participants provide additional details and comments to give Fed officials a more vivid sense of how the economic recovery is unfolding as they prepare for their next policymaking meeting in two weeks.
The Federal Reserve Bank of St. Louis, for example, said nearly 60 percent of auto dealers surveyed noted an increase in sales of "used and low-end cars . . . a change they attributed to an increase in consumer demand for smaller, more fuel-efficient cars in light of recently rising gasoline prices."
Likewise, auto dealers in the Philadelphia Fed district reported that sales of large sport-utility vehicles had "sagged," but demand had grown for smaller versions. The San Francisco Fed bank said sales of SUVs and trucks had slowed in recent weeks "reportedly due in part to consumer concerns about rising fuel prices."
However, other Fed banks, such as those based in Chicago and Minneapolis, said gasoline prices, which hit record highs in late May, had not affected sales of sport-utility vehicles and other light trucks.
Nothing in the Fed report, called the "Beige Book" for the color of its cover, changed analysts' and financial market expectations that the policymakers will raise their target for a key overnight interest rate to 1.25 percent from 1 percent at their next meeting, and will continue to lift it gradually over the next year or so to keep inflation under control.
The Fed also reported yesterday that production at U.S. factories, utilities and mines rose 1.1 percent in May, the biggest jump in nearly six years.
In a separate report, the Commerce Department said construction began on 0.7 percent fewer houses and other residential projects last month. However, the number of housing starts, at a seasonally adjusted annual rate of 1.97 million, remained at a relatively high level and represented a 12.5 percent increase from May of last year.
Fed Chairman Alan Greenspan said on Capitol Hill on Tuesday that he and his colleagues generally agree that "inflationary pressures are not likely to be a serious concern in the period ahead." Although overall inflation has jumped in recent months, that is largely because of surges in energy and food prices, which several Fed officials believe should be temporary. Already, the prices of crude oil and gasoline have receded somewhat from their recent peaks.
The Beige Book provides a snapshot of how spiking fuel prices and other price pressures were affecting businesses over the past eight weeks.
For example, strong economic growth was raising the demand for freight transportation services in most Fed districts, the report said, and "transportation firms are more readily passing on cost increases from rising fuel and health care coverage costs to their customers."
The Cleveland Fed said trucking and shipping companies in its district are running their fleets at near-capacity to satisfy demand coming "from an array of industries."
The Atlanta and Chicago Fed districts reported shortages of truck drivers. Chicago district rail freight companies said they were buying boxcars and containers, while trucking firms were buying tractors and trailers.
Meanwhile, the Dallas Fed reported that "strong demand for gasoline is helping refiners earn record profit margins."
The Fed banks also reported rising prices for a variety of other goods.
Tuition at the University of Minnesota is going up 14 percent in the coming year, and prices have moved higher in the Minneapolis Fed Bank's district for meat, drywall, lumber, cement and fertilizer.
Ice cream prices are up in the Dallas district, as well as prices for petrochemicals, plastics, steel, aluminum, lumber, paper, liner board, cement, brick, tile, glass ceramics, corn, wheat, rice, cheese and milk.
Nearly half of the manufacturers surveyed in the Philadelphia district have raised the prices of their products since the beginning of the year.
The rebounding tourist industry was able to raise prices in several areas.
Manhattan hotel occupancy rates climbed to a nearly four-year high in April, while hotel room rates also rose 10 percent from a year earlier, reaching their highest levels since summer 2001 -- just before the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.
Florida hotels and restaurants raised room rates and menu prices as the weaker dollar prompted more Europeans to visit Florida, and caused more U.S. visitors to go there instead of overseas, the Fed said. Traffic out of Orlando International Airport had climbed back to pre-Sept. 11 levels for the first time.
Other signs of economic strength abounded, mixed with pockets of weakness.
Residential real estate activity "remained robust in most districts," while commercial real estate markets were "mostly slack."
Home sales were "exceptionally strong" in the Richmond district, which includes the D.C. area, while the Fed banks in Dallas and Chicago reported that "fence-sitters" were jumping into the market in anticipation of rising mortgage interest rates.
The prices of Manhattan co-ops and condos have risen sharply in the past year, the report said, adding, however, that the housing market pulled back in May following "a surge in both sales and prices in March and April."
By contrast, commercial real estate markets remained burdened by continuing high vacancy rates, slow leasing activity and low or flat rents in April and May, the report said. A "major exception was the Washington, D.C. area . . . where leasing activity increased substantially in recent weeks."
In general, the Richmond district's "economy quickened" since the last Beige Book was issued in late April.
One Washington area department store manager reported that sales growth was "a little bit better" than six weeks ago, and a respondent at an executive search firm here said "things are really picking up."