San Diego Housing Bubble News and Analysis

http://www.bloomberg.com/apps/news?pid=2...

By Scott Lanman

Sept. 3 (Bloomberg) -- Business across most of the U.S. was ``slow'' last month, while almost all Federal Reserve districts reported pressure to raise prices because of higher commodity costs, the central bank said in its regional economic survey.

Consumer spending was ``slow'' in most of the 12 Fed districts as housing ``weakened or remained soft,'' the Fed said in its Beige Book report, published two weeks before officials meet to set interest rates. A ``general pullback in hiring'' helped keep wage increases ``moderate,'' the Fed said today.

With the economy weakening under the impact of the yearlong financial crisis and housing recession, and consumer prices rising, most investors anticipate the Fed will keep interest rates unchanged through December. Policy makers have lowered the rate 3.25 percentage points over the past year.

The picture of the economy ``is a troubling one,'' John Ryding, a former Fed economist who now runs RDQ Economics LLC in New York, said in an interview with Bloomberg Television. ``We could see the economy languishing or move further south and at the same time see inflation pressures remain elevated -- and that's stagflation.''

While prices of energy and other commodities have declined recently, the Fed said companies in the San Francisco district, the largest region, reported that ``upward price pressure remained significant,'' while ``price levels remained high'' in three other districts. Philadelphia-area retailers saw ``rising wholesale costs,'' the Fed said.

Hiring `Pullback'

``The pace of economic activity has been slow in most districts,'' the report said. ``Wage pressures were characterized as moderate by most districts amid a general pullback in hiring.''

Today's report was prepared by the Philadelphia Fed, based on information collected on or before Aug. 25.

The survey comes amid a debate among policy makers about the magnitude of the threats posed by inflation and the credit crisis.

In a speech today, Boston Fed President Eric Rosengren said the U.S. credit crunch has blunted the impact of the Fed's rate cuts, signaling he opposes raising borrowing costs. By contrast, the Fed said yesterday that directors of three other district banks asked to raise the charge on loans to commercial banks at the Aug. 5 policy meeting.

Price Pressures

The previous Beige Book, released July 23, reported ``elevated or increasing'' price pressures amid slower economic growth. Five districts indicated ``a weakening or softening'' in their economies, and consumer spending was ``sluggish or slowing'' in every region.

At the last meeting, Fed policy makers agreed that their next change in rates would be an increase, with some officials concerned about inflation favoring an increase earlier than traders expect, according to minutes of their meeting.

Today's report said labor markets were ``unchanged or somewhat softer'' across most of the country, compared with the last Beige Book. Several districts said the energy industry had worker shortages, the Fed reported.

About 463,000 Americans have lost jobs since January as the worst housing recession in a quarter century has curtailed spending and bank lending. Economists expect annualized rates of growth of 1 percent in the third quarter and 0.4 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey in early August.

Demand Declined

Manufacturing ``declined'' in most regions, and demand slowed for home mortgages and consumer loans, the Fed said today.

Fed Chairman Ben S. Bernanke in an Aug. 22 speech that inflation should ease later this year and in 2009, while warning that policy makers will act if price increases don't slow over the ``medium term.'' He said financial turmoil has ``not yet subsided'' and is contributing to weaker economic growth and higher unemployment.

The consumer price index rose 5.6 percent for the 12 months ending in July. The Fed's preferred benchmark, the personal consumption expenditures price index, minus food and energy, has been at 2 percent or higher since April 2004.

``All districts reported continuing upward price pressure from elevated input costs, although several noted recent retreats in some commodity and energy prices,'' the Fed said today.

The Beige Book's regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 U.S. states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.