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Fed says economic growth sluggish

June 12, 2008|From Bloomberg News

The Federal Reserve said Wednesday that economic growth was "generally weak" in April and May as consumer spending slowed, while manufacturers in several regions passed on higher raw material costs to their customers.

Three of the 12 regional Fed banks reported "softer, weaker or lower" growth and four found "slower, sluggish or modest" expansion. Five areas reported business was "stable or little changed," the central bank said in its regional economic survey known as the beige book.

The report indicates the economy is slowing but not contracting, an assessment that echoes Fed Chairman Ben S. Bernanke, who said this week that dangers of a deeper downturn were receding.

"There is not quite the degree of softness that we saw in the previous beige book," said David M. Jones, president of DMJ Advisors in Denver. That "allows the Fed to pay greater attention to these inflation expectations" among consumers.

The number of districts reporting no further deterioration in the economy more than doubled from three in the previous survey, released April 16. Wednesday's report was based on information gathered from late April until June 2.

The San Francisco bank reported that the western region's economic condition "appears to have changed little," and "upward prices were subdued for most products but remained severe for food and energy-intensive items, while wage pressures continued to ease in some sectors."

The anecdotal reports are part of a package of analysis and data that will be used by Fed policymakers as they decide on interest rates at their meeting June 23-25.

Bernanke indicated this month that inflation is increasingly a concern, and that the slow economic growth that policymakers anticipate won't spur further rate cuts. The Fed chief said Monday that the rate-setting Federal Open Market Committee "will strongly resist an erosion of longer-term inflation expectations."

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