WASHINGTON - The economy flashed fresh signals of strength in the last two months, with factories buzzing and cash registers ka-chinging despite high gas prices.
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The latest snapshot emerging from the Federal Reserve's survey of the business climate around the country, released Wednesday, suggested the economy has bounced back nicely from a springtime soft patch. The job market showed some improvements and inflation was fairly contained, the survey also found.
The picture was consistent with the assessment Fed Chairman Alan Greenspan offered last week when he delivered the central bank's midyear economic outlook to Congress.
At that time, Greenspan signaled that short-term interest rates will continue to move higher in the months ahead in an effort to keep the economy and inflation on an even keel. Economists widely expect Fed policymakers will boost rates by another quarter-percentage point at their next meeting, Aug. 9. The Fed's survey appears to support such a move.
Over the last year, the Fed has pushed a key interest rate to 3.25 percent in nine modest, quarter-point moves. Before the Fed embarked on its credit tightening, that key rate stood at 1 percent, a 46-year low.
Some analysts believe this key rate could climb as high as 4.25 percent by the end of this year.
In the survey, most of the Fed's 12 regional districts reported "moderate to solid expansions in manufacturing activity and expectations for future factory activity were generally upbeat." The survey also noted that "activity in a wide variety of manufacturing industries was characterized as strong."
Boston and San Francisco, for instance, reported strength in aircraft and high-tech manufacturing; Atlanta and Dallas said refineries were doing quite well. Several districts reported that producers of construction materials, especially cement, and industrial equipment also were busy. But makers of metals and textiles saw some weakness.
The Fed's survey is based on information collected before July 18.
Consumer spending, a key force behind economic activity, also was holding up well despite high energy prices, the survey suggested.
"Most districts reported increases in retail sales and reports on retailers' expectations were generally positive," the survey said.
Boston, however, reported sales were flat or down from a year ago, and New York said sales softened in early July, following solid growth in June.
Meanwhile, car sales in nearly all of the Fed's regions were boosted by a new round of price discounting. And, tourism continued to show strength throughout much of the country, the report said.
The housing market remained hot, but showed a "few signs of cooling" in some districts, the survey said. House activity and home price appreciation in Massachusetts moved from "hot" to "normal." In the Richmond, Atlanta and San Francisco districts housing activity stayed strong but "eased in a few markets that had been especially hot ? Washington, D.C., several Florida markets and parts of southern California."
Oil prices surged to a new closing high of $61.28 a barrel in early July. Gasoline prices earlier this month set a record of $2.33 a gallon nationwide, the Energy Department reported.
Yet, inflation was contained in most Fed districts, the survey suggested.
"Overall price pressures either eased slightly or remained unchanged in most districts despite substantial increases in the cost of energy and some building materials," the report said.
Transportation firms in the Chicago, Cleveland and Dallas areas were able to pass much of their increased fuel costs to customers, the report said. "However, in a number of districts, firms outside the transportation sector were reported as having only limited success passing on cost increases."
On the employment front, demand for workers increased in most Fed districts, but New York said labor markets were a bit softer overall despite a pickup in hiring at financial services. Several districts reported stronger demand for temporary workers. Skilled workers were in shorter supply in some areas, truck drivers were reported as scarce in Cleveland, Richmond and Atlanta.
The nation's unemployment rate dropped to 5 percent in June, the lowest level in nearly four years.
Even with the labor market improvements, wage pressures ? a barometer of inflation ? remained moderate, the Fed said.
