Economy hums along at 'steady' pace across USA

Section: Money, Pg. 05b

WASHINGTON -- Economic activity expanded in most of the USA at a "moderate" to "steady" clip in the first two months of 2006, despite a slower housing market, the Federal Reserve said Wednesday.

Manufacturing and commercial real estate were healthy, the central bank said in its beige book, an anecdotal report of conditions across the 12 Fed districts named for the color of its cover. Nearly every region had a shortage of skilled workers.

But half the Fed districts reported more homes on the market. Some developers in the Atlanta area put condo projects on hold. At the same time, builders in the Cleveland, Kansas City and Dallas Fed regions said demand for new homes was up from late 2005.

Prices for energy and other inputs were high, but retail price and wage pressures were modest. Given recent, strong data, some economists expect the Fed to keep raising interest rates to hold inflation pressures at bay. The Fed has taken the target for its benchmark short-term rate to 4.5% from 1% in mid-2004.

USA TODAY's economics reporters Barbara Hagenbaugh and Sue Kirchhoff looked at the report.

1. st District: Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, most of Connecticut. Reports were "generally positive," but included soft spots. About half of manufacturers worried about high costs, fewer than in recent reports. Most had raised sales prices, typically by single digits. Software and IT firms had year-over-year revenue increases from near zero to 25% in recent quarters; most in double digits.
2. nd District: New York, northern New Jersey, Fairfield County, Conn. The economy expanded at a "good pace." There were scattered wage pressures, but little evidence of any broad consumer price increases. More than 45% of bankers had lower demand for consumer loans, while just 3% saw gains; responses on residential mortgages were similar.
3. rd District: Delaware, southern New Jersey, eastern Pennsylvania. The region grew at a "slow pace" in February. Employers in a range of industries had more trouble finding and keeping qualified workers at all skill levels, however. Several firms stepped up counteroffers to keep workers from leaving. Factory orders rose. Residential mortgage lending declined, but commercial and industrial lending was up.
4. th District: Ohio, eastern Kentucky, western Pennsylvania, northern West Virginia. Activity was steady. Home builders saw a slight increase in sales from the end of 2005. But inventories of unsold homes remained relatively high, and discounting was more widespread than usual. Job growth was "somewhat sluggish." Cost pressures eased a bit, especially at manufacturers.
5. th District: Maryland, Virginia, North Carolina, South Carolina, southern West Virginia, District of Columbia. Growth moderated as retail and housing activity slowed. Prices for most goods and services rose a bit more quickly. A big-box retailer said more gift cards were being used for necessities this year, probably because high energy costs had pinched consumers. Furniture sales were down. One banker got mortgage business only with such products as interest-only loans.
6. th District: Alabama, Florida, Georgia, eastern Tennessee, southern Louisiana, southern Mississippi. Most businesses were "upbeat." Retailers did well. Auto sales and tourism were up. Housing slowed, though there was a shortage of construction workers. Defense, building products and transportation equipment makers had better sales. Biloxi casinos boomed.
7. th District: Iowa, northern Indiana, northern Illinois, southern Michigan, southern Wisconsin. Manufacturing was "strong" in the first two months of the year with demand for mining and construction equipment particularly robust. Farmers in Illinois and Iowa altered insurance plans to cover yield losses in light of drought conditions. The job market "improved modestly" as some manufacturers increased payrolls. Housing softened from record levels.
8. th District: Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri, western Tennessee. The region's economy expanded "modestly." Retailers reported sales above a year ago, particularly for home decorations, jewelry and food. Women's and winter clothes were not moving as quickly. Car dealers reported a drop in sales from last year. Several manufacturers planned to open factories, expand existing facilities and hire new workers.
9. th District: Minnesota, Montana, North Dakota, South Dakota, upper Michigan, northern Wisconsin. The region's job market tightened, with employers reporting rising wages for manual-labor workers as firms struggled to fill empty slots. The number of job openings in Minnesota rose 22% in the fourth quarter from a year earlier. The area's construction industry was busy while ski resorts reported strengthening lift ticket sales. The office vacancy rate in the Minneapolis-St. Paul area was the lowest in five years.
10. th District: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, northern New Mexico. The area's job market "softened somewhat" from prior months. Several large meatpacking plants announced plans to shut down or cut shifts. Truck drivers, auto technicians and geologists, however, were in demand. Sales of high-end housing were "soft" while contacts expected commercial real estate markets to improve. SUV sales picked up while auto dealers reported sales were flat or down from a year ago.
11. th District: Texas, northern Louisiana, southern New Mexico. The region's economy strengthened, marked by strong activity in both the manufacturing and service sectors. The job market improved. While wage pressures were minimal in many industries, firms reported rising compensation for accountants, and temporary help agencies said pay was increasing for workers at the lower end of the income scale. Apartment demand was strong.
12. th District: Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington. The housing sector continued to soften, albeit from very high levels, and there were signs of "significant cooling" in parts of Hawaii, Arizona and California. Travel and tourism was "vigorous," particularly in Hawaii while hotel room rates rose in the San Francisco Bay Area. The pace of wage growth was "moderate, while continued gains in productivity allowed firms to keep selling prices steady.

(c) USA TODAY, 2006