Washington, DC, June 17--The economic recovery broadened in April and May as most regions of the country reported stronger factory production, robust retail sales and faster job growth, but inflation remained tame, the Federal Reserve said.
In a survey of business conditions across the country, the central bank said economic activity "continued to expand" in April and May without igniting serious inflation risks. Although most of the Fed's 12 districts reported rising prices of raw materials such as steel, building materials and energy-related products, consumer-price inflation was "generally modest," the central bank said.
Still, in a sign that inflation is likely to creep up, the Fed said businesses in half of the 12 districts reported a strengthening of their ability to raise prices. "In response to higher input prices, some businesses were able to push up prices to their end consumers in the Philadelphia, Cleveland, Atlanta, Chicago, Kansas City and Dallas districts," the Fed said in the survey, commonly called the "beige book" for the color of its cover.
The U.S. economic recovery broadened in April and May as most regions of the country reported stronger factory production, robust retail sales and faster job growth, but inflation remained tame, the Federal Reserve said Wednesday.
Those findings generally validated the view of most Fed policymakers that the economy has recovered sufficiently this year to permit the central bank to start reversing the easy money policies it has followed since 2001. Since the start of the year, the economy has generated nearly a million non-farm jobs, and inflation has risen faster than Fed policymakers thought it would.
Wall Street, as a result, widely expects the Fed to raise its key federal-funds rate at its next meeting of policymakers June 29-30. The rate now stands at 1%, a 46-year low, but most economists expect it to climb to 1.25% on June 30 and to 2.25% by the end of the year. Fed Chairman Alan Greenspan has said that so long as inflation remains mild, rate increases will be "measured," a term analysts have taken to mean rate increases in increments of a quarter percentage point at a time.
In its survey Wednesday, the Fed said the rebound in the U.S. labor market hadn't fanned much inflation. "Employment activity continued to improve, with hiring increasing at a faster pace in most districts," the central bank said. Even so, "wages and salaries experienced little or muted upward pressures," it said. Greenspan has said the Fed will pay close attention to labor costs over the next few months, regarding them as an important sign of inflation.
The survey showed improvement in most key sectors of the economy. Manufacturing was up in most Fed districts, and several described the improvement as "broad-based." Retail sales rose or were stable in most regions. Real-estate markets across the country "remained robust," the Fed said, and "agricultural conditions across the nation were generally favorable." Commercial banks stepped up lending in all but two regions - Chicago and St. Louis, which reported that lending was "flat."
