Federal Survey Says Economy Is Up

Wednesday, September 20th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” The record-breaking economy grew solidly in the late summer but there were additional signs the breakneck pace of earlier months was slowing, the Federal Reserve said Wednesday.

The Fed's latest survey of business activity around the country, based on reports from its 12 regional banks, said home sales and construction activity, which have been engines of the vibrant economy, continued to soften in August and early September.

Consumer spending, which accounts for two-thirds of all economic activity and has been the biggest driver of robust growth â€” ``was flat to modestly higher'' in August compared with late spring and early summer, the survey said.

Fed policy-makers will use the survey when they meet Oct. 3 to review their stance on interest rates. A spate of recent economic reports indicate that the Fed's six interest-rate increases over the last 15 months are working to cool growth.

Those reports, along with the survey, are bolstering analysts' belief that the Fed is through raising interest rates for this year.

``This is more evidence the economic situation is stable enough for the Fed to be on hold,'' said economist Clifford Waldman of Waldman Associates.

``At the present time, the tightening that we have seen has impacted growth moderately and has slowed it down,'' he added.

The survey, known as the ``beige book'' for the color of its cover, is based on information collected before Sept. 11.

``Economic activity expanded at a moderate pace in August and early September even though further signs of slowing growth were noted in several districts,'' the survey said.

Many economists believe the economy has slowed in the current third quarter to a growth rate of around 3.5 percent to 4 percent, compared with the vigorous 5.3 percent rate posted in the second quarter.

Even with evidence that the economy is cooling a bit, the Fed said the nation's labor market continues to be tight, meaning companies are scrambling for workers. New York, for instance, cited a ``severe shortage of computer `techies' as well as unmet demand for office workers,'' according to the survey.

And, there were widespread reports of employers boosting wages to recruit and retain workers. Companies in New York said salaries for office workers were up more than 10 percent from a year ago.

Yet, the Fed said there were few indications that such wage increases were being passed along to consumers in the form of higher product prices.

``Higher productivity and competitive pressures held firms' prices in check,'' the Fed said.

Healthy gains in productivity â€” the amount of output for each hour of work â€” means companies can pay employees more, hold the line on prices and still deliver increased profits to shareholders.

Still, several districts indicated that the recent sharp increases in health care and energy costs ``might eventually be passed through to consumers,'' the survey said

Observed Waldman: ``Stresses on the economy such as the tight labor market remain but for now they aren't worrisome.''

In another report, the U.S. trade deficit soared to a record $31.9 billion in July as oil prices climbed to a 10-year high, the Commerce Department said. America set record deficits with China, Japan, Western Europe and Canada.

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On the Net: Fed Reserve: http://www.federalreserve.gov