WASHINGTON (AP) - A few "pockets of weakness" have emerged in the nation's booming economy, the Federal Reserve said Wednesday in a report presenting fresh support for keeping interest rates steady.
In a survey of regional conditions, the central bank portrayed an economy down-shifting to a more sustainable pace after hitting a sizzling, decade-high annual growth rate of 5.8 percent in the first quarter.
Jobs are going begging and that's leading to some wage increases, but so far higher pay hasn't forced companies to raise retail prices, the Fed said in a compilation of anecdotal reports from its 12 district banks.
"All 12 district economies expanded in May and early June, although there were pockets of weakness," said the survey, known as the "beige book" because of the color of its cover.
It appeared to support most economists' belief that Fed policy-makers, scheduled to meet in two weeks, won't need to quash inflation by dampening the economy with higher interest rates.
"It's clearly a signal for the Federal Reserve to hold interest rates unchanged in the near term," said economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla. "It confirms other reports the economy is still growing, but at a moderate pace."
Fed policy-makers nudged short-term interest rates higher on March 25 for the first time in two years. But, amid signs the economic growth was moderating, they didn't touch rates at their May 20 meeting.
The report's suggestion that they probably won't at the July 1-2 gathering helped ameliorate a losing day on Wall Street. The Dow Jones average of industrial stocks, which had been down nearly 62 points before the report's release, closed at 7,718.71, down 42.07.
The beige book, based on information collected through June 9, found construction and real estate strong across much of the country, despite weak growth in some areas.
It said retail sales were weaker in many Fed districts but manufacturing remained at high levels and growing. That's resulted in some unwanted pileup of inventories, the report said, noting a sizeable increase reported by an auto manufacturer in the Chicago district. Reaser said the overhang of unsold goods should act as a brake on growth this summer.
At the same time, the beige book found many examples of the impact of the booming job market, which has pushed the nation's unemployment rate to a near 24-year low of 4.8 percent in May.
Companies were having trouble hiring skilled professionals in the high-tech, construction and energy industries. And some districts - Atlanta, Chicago, Dallas, Kansas City, Minneapolis and San Francisco - reported shortages of both skilled blue-collar and entry-level workers.
Temporary help firms in the Cleveland district have had to turn to marginally qualified workers and spend more on training. A Wisconsin contractor reported paying wages to an idle crew between jobs for three weeks just to avoid losing workers to competitors.
But, despite wage increases in a few markets, "retail and manufacturing prices were being held in check by heavy competition," the Fed said.
In the first five months of the year, consumer prices have advanced at a tiny 1.4 percent annual rate. And a separate report from the Labor Department on Wednesday suggested strong productivity gains as a reason.
Non-farm productivity grew at a seasonally adjusted annual rate of 2.6 percent in the first quarter, double the 1.3 percent rate of the fourth quarter. It was the best performance since an identical gain in the fourth quarter of 1993.
Robust productivity increases mean businesses can raise wages without boosting their prices because workers are producing more in each hour of work.