ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, September 12, 1996 TAG: 9609130008
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
THE BEIGE BOOK about the economy's condition added to expectations the Fed may raise interest rates.
The nation's economy expanded moderately as summer was drawing to a close, the Federal Reserve said Wednesday in a report that hints at growing wage inflation pressures in many regions.
``Business activity in most districts is reported to be generally good and expanding moderately,'' according to a survey of regional business conditions by the Fed's 12 district banks.
But while reports of substantial price increases were absent, the survey found ``pockets of labor market tightness and, in a few regions, this tightness appears to be broadly based.'' As a result, ``wage gains have tended to outstrip price increases.''
The survey, known generally as the beige book because of the color of its cover, will be used by Fed policy-makers when they meet Sept. 24 to consider adjusting interest rates. It was based on information collected through the middle of last week.
There is growing belief among analysts that Fed officials will raise short-term interest rates at the meeting to slow economic growth and prevent any acceleration in inflation.
Recent reports, including shrinking unemployment, expanding factory orders and continued high levels of home sales, have caused many to question earlier beliefs that the economy will slow by itself this fall.
Fed Chairman Alan Greenspan told Congress in July that unless there was ``persuasive evidence'' of a moderating economy soon, the central bank would be forced to apply the brakes with tighter credit.
Signs of a tightening labor market, which could result in larger wage hikes, have stoked fears recently of budding inflation pressures. Labor typically represents two-thirds of the cost of a product.
``The Richmond district sees widespread upward pressure on wages and rising labor costs were also noted in the San Francisco district,'' the survey found.
``The Boston district's wage and salary increases are in the 2 percent to 4 percent range,'' it said. ``In Cleveland, wage growth is reportedly 2 percent to 3 percent, although the cost of new hires is accelerating.''
Still, the survey said most districts reported a modestly growing economy. Two exceptions: ``Growth in the San Francisco district is characterized as strong and the St. Louis region has continued to moderate slightly.''
``The back-to-school shopping season got off to a good start and several districts indicated that sales are meeting - or exceeding - expectations,'' the survey found.
``A good number of districts reported strong apparel sales (Boston, New York, Cleveland, Atlanta and Kansas City), although these vary by type and outlet. Household appliances and other big-ticket items are a noted weakness in two reports (Cleveland and Chicago).''
The district banks also found industrial activity either expanding or holding steady at a high level in most regions. Building activity also remained strong in most parts of the country. Loan demand also was holding steady at a generally high level.
But agricultural conditions varied widely by district, although most regions reported better crop conditions than earlier in the summer.
``Still, a delayed planting season has resulted in underdeveloped crops in many areas and there is concern that crops could be threatened in the event of an early frost,'' the survey found.
Districts with a significant tourist trade reported mixed results for the summer season.
LENGTH: Medium: 71 linesby CNB