Wed Jul 28, 2004

WASHINGTON (Reuters) - The U.S. economy moved ahead in June and the first part of July but the pace of growth varied by geography, the Federal Reserve said on Wednesday in its "beige book" economic report.

The report was generally in line with Fed Chairman Alan Greenspan's recent assessment before the Senate Banking Committee that the U.S. economy had hit a temporary "soft patch" in June, though it also suggested the weakness extended into early July.

Still, Greenspan is widely expected to lead his colleagues on the central bank's Federal Open Market Committee to approve a quarter-percentage point increase in the key federal funds rate at the FOMC's Aug. 10 meeting. The "beige book," named for the color of its cover, is released about two weeks before each FOMC gathering.

"Federal Reserve districts reported that economic activity continued to expand in June and early July, although several districts reported that the rate of growth moderated," said the report, an anecdotal look at conditions across the nation, as seen by the Fed's dozen regional banks.

Growth was described as ranging from "modest" to "solid" in half of the regions, while five Fed banks said growth rates had "slowed somewhat." Another Fed bank, in Boston, cited "mixed" reports from its business contacts.

Wednesday's report showed inflation pressures remained muted, at least at the retail, level and should quiet worries the Fed is lax in fighting rising prices as the economy recovers.

"Reports of rising prices at the producer level continued to be common, though increases in retail prices were only infrequently reported. While wage gains remained generally flat, benefits costs continued to rise," the report said.

With raw materials prices putting pressure on margins, the report said firms' ability to pass on those increases to customers "continued to vary," but none of the 12 regions reported an acceleration in retail prices.

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