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The country slogged through slower economic growth and rising prices during the summer, packing a double whammy to people and businesses alike, as reported by the Associated Press.
The Fed’s new snapshot of business conditions, released today (July 23), also underscored the challenges confronting Federal Reserve Chairman Ben Bernanke and his colleagues as they try to get the economy back on track.
For now, many economists predict the Fed will probably leave a key interest rate alone when it meets next on Aug. 5 — given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market. On the other hand, the Fed isn’t inclined to lower rates because that would aggravate inflation.
Growth and inflation barometers turned worse in the summer, according to the Fed report. Some worry that the country may be headed for a bout of stagflation, that toxic combination of stagnant growth and stubborn inflation last seen in the 1970s.
Bernanke has said, however, that he doesn’t believe the economy will suffer from stagflation.
Information from the Fed’s 12 regional banks around the country suggested that “the pace of economic activity slowed somewhat since the last report” issued in June, the Fed report said.
Consumer spending — the economy’s lifeblood — was reported as “sluggish or slowing” in nearly all the 12 Fed regions, although the government’s tax rebate checks spurred sales for some items, especially electronics. Sales at many other stores, particularly for housing-related goods, were typically characterized as “weak or falling,” however.
Looking ahead, “the outlook for retail activity was also generally downbeat,” the Fed report said. Sales expectations were described as “grim” among retailers in the Dallas Fed region and “subdued” in the Atlanta region.
Auto sales, meanwhile, were characterized as “almost uniformly weak” across all Fed regions. Sales were especially poor for gas-guzzling SUVs, trucks and some minivans.
The drooping value of the U.S. dollar, which makes U.S.-made goods and services cheaper and more attractive to foreign buyers, has helped to boost export growth. That export growth has been a key force keeping the economy afloat.
Turning to inflation, all Fed regions described “overall price pressures as elevated or increasing,” the Fed report said.
Businesses continued to be hit by rising prices for fuel, metals, food and chemicals, among other things. Many Fed regions said manufacturers planned to raise prices to customers as a way of coping with the higher production costs. Some worried about a drop in customer demand and overall sales volume because of price hikes.
In a dose of good news, oil prices retreated today. They are now hovering above $127.44 a barrel. Oil prices marched to a new high above $147 a barrel less than two weeks ago, but have been ebbing in recent sessions.
At the gas pump, prices dipped. A gallon of regular dropped more than a penny to an average of $4.042 nationwide, according to auto club AAA, the Oil Price Information Service and Wright Express.