U.S. manufacturers cranked out more goods in recent weeks, while auto dealers moved more vehicles off their lots and trucking companies tried to find enough drivers to keep up with growing demand.
Yet even as the economy expanded in September and early October, rising energy costs were "constraining consumer and business spending" across the country, according to a Federal Reserve survey released yesterday.
Uncertainties over energy prices, global terrorism and the presidential election were among the reasons businesses continue to hold back on hiring and investment, according to the Fed's most recent survey of regional economic conditions, called the Beige Book.
The details of the report fit the overall picture of the economy painted in recent public remarks by several Fed officials, who generally see an economy that is doing fine but faces several risks in the months ahead. They believe it will keep growing, though more slowly than earlier this year, as employment and business investment rise. But, some add, it might falter again if energy prices keep rising.
Oil prices slid sharply yesterday, helping push the Dow Jones industrial average back over 10,000 as stocks rallied for their second day of 100-point gains. The price of U.S. benchmark crude oil for December delivery fell to $52.46 a barrel, down $2.71 from the day before, on the New York Mercantile Exchange. Analysts said the oil market reacted to new figures showing that U.S. stockpiles of crude oil had increased more than expected.
But businesses remain skittish.
"High energy costs are taking a bite out of consumers' wallets," the Dallas Federal Reserve Bank reported.
Because of the economy's basic strength, Fed policymakers remain very likely to raise their benchmark interest rate to 2 percent from 1.75 percent at their next meeting, Nov. 10, many analysts say.
At 2 percent, the rate should continue to stimulate economic growth and job creation. But by raising it slightly, for the fourth time this year, the Fed would be seeking to reduce the chances that very low rates would cause inflation to flare in the future.
Analysts remain divided, however, on the Fed's likely action at its meeting in December because of the unpredictability of energy prices and their effect on the economy.
If prices go higher, they might exert more of a drag on growth or fan inflationary pressures. If they drop, that might spur growth and ease inflation worries.
Many analysts have said, and some Fed officials have suggested, that the central bank would leave its benchmark federal funds rate unchanged in December if the economy loses significant momentum. The rate is the amount charged between banks on overnight loans.
"There might be a need to consider pausing in the process of raising rates if slower growth in demand caused economic activity or labor market activity to slow down," Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech last week, citing oil prices, sluggish job growth, low consumer savings and business caution as risks to growth. "By the same token, if inflation were to fall much further below recent rates, we would need to consider pausing."
Meanwhile, some analysts argue that the Fed will raise the rate another quarter of a percentage point, to 2.25 percent, if growth continues at a solid pace, or if inflation picks up.
Fed officials have said recently that inflation appears quite contained. But they also constantly repeat that they will act aggressively to make sure it stays under control. They want to prevent businesses and consumers from anticipating ever-higher prices -- the kind of expectations that became self-fulfilling during the double-digit inflation of the 1970s.
"Retaining public confidence in the Federal Reserve's commitment to price stability will continue to be essential," Fed member Ben S. Bernanke said in a speech last week. He said, however, that if both inflation and inflation expectations are low, "then less urgency is required in responding to the inflation threat posed by higher oil prices."
The rise in oil prices, from around $30 a barrel a year ago to above $55 a barrel in recent weeks, has been "large enough to constitute a significant shock to the economic system," Bernanke said. "The days of persistently cheap oil are over."
But, he said, that has not translated into a broader rise in inflation. Consumer prices, excluding those for food and energy, rose just 1.4 percent in the 12 months that ended in August, according to a Commerce Department measure of inflation. That is well within the Fed's comfort range.
The Beige Book described how many businesses across the country are feeling the pinch of higher oil prices and have sought with varying degrees of success to pass them on to other companies. In contrast, retail prices "generally were subdued."
Businesses paid more for their own fuel, for oil-based products and often for transportation services that included oil-related surcharges.
Whether the Fed raises its rate in December or leaves it unchanged, it will still be low enough to encourage businesses and consumers to borrow and spend. The rate affects the economy by influencing the rates on longer-term loans, which are determined by financial markets.
Usually, long-term rates rise in response to Fed increases. But many longer-term rates have fallen since June, when the Fed started raising the funds rate this year, because bond traders generally foresee slower economic growth, tame inflation, a very gradual pace of Fed rate increases and relatively little competition for capital.
For example, the Fed has raised its rate this year to 1.75 percent, from 1 percent in late June. During the same period, the yield on the 10-year Treasury note, which influences mortgage rates, has fallen more than half a percentage point, to 4.09 percent yesterday.
Staff writer Justin Blum contributed to this report.