Fed: Economy Carries Momentum In Springs

By JEANNINE AVERSA Posted 15 March 2006 @ 08:37 pm EET     Print     Reprint     E-Mail     Comments

WASHINGTON (AP) - The economy headed into the spring season with solid momentum, helping to generate more employment opportunities and keep factories humming, the Federal Reserve reported Wednesday.

Overall economic activity continued to expand into early March even as the housing market flashed fresh signs of cooling after a red-hot, five-year stretch of record-high sales, the Fed said in its new snapshot of business activity around the country.

Thus far, the strengthening labor market is translating into modest wage gains for the average worker in most of the Fed regions, the report said. Fed officials closely monitor wages _ as well as the prices of goods and services _ for insight into the nation's inflation climate.

In general, consumer prices are rising at a modest pace even though businesses are coping with high energy prices and rising costs for other materials, such as cement, lumber and copper, the Fed said.

The survey is based on information supplied by the 12 regional Federal Reserve banks. The information for the survey was collected before March 6. It will figure into discussions at the Federal Reserve's next meeting to examine interest rates on March 27-28.

That March meeting will be the first for Federal Reserve Chairman Ben Bernanke, who took the helm on Feb. 1. He succeeded Alan Greenspan, who retired after 18-plus years running the central bank.

Many economists predict the Fed will boost short-term interest rates by one-quarter percentage point to 4.75 at that meeting to keep the economy and inflation on an even keel. The Fed under former chairman Greenspan has been tightening credit for nearly two years.

Although economists have different views on how many more rate increases will be ordered by the Fed in the coming months, most believe that the central bank's rate-raising campaign probably will come to a close sometime this year.

Deciding when to stop tightening credit will be one of Bernanke's first challenges. If he stops too soon, inflation could flare up. If he waits too long, the economy could be hurt.

Looking at the labor market, "employment continued to increase in most locations and in many sectors of the economy," the Fed survey said. "Almost every district reported shortages of high-skilled workers."

For most Fed districts, wages increased "modestly" on average. The exception: the Philadelphia region, where businesses said they expected wages to go up faster this than last year as "firms stepped up counteroffers to workers who were planning to change jobs."

The Fed survey also said that "a shortage of qualified workers for skilled positions in finance, construction and manufacturing industries resulted in more rapid increases in pay for those workers."

On the manufacturing front, "the strength in demand for factory goods was widespread across industries," the Fed survey said. Some of the sectors reporting facing strong demand included construction materials, electrical equipment, defense products, tractor trailers, heavy trucks and heavy machinery.

The report also said that consumer spending continued to grow and that reports on tourism were mostly positive.

Turning to the housing market, homebuilders in many Fed regions indicated that new-home sales "were trending down" but business contacts in the Cleveland, Kansas City and Dallas regions said demand for new homes had improved.

Half of the Fed's regions said the number of homes for sale had increased. Home price appreciation, meanwhile, slowed in many areas.