Moderate growth and subdued inflation -- this was the message conveyed in today's release of the Federal Reserve's report on the status of the U.S. economy over the past couple months.

This edition of the so-called "Beige Book" was prepared by the Boston district bank and covered economic news releases and district bank reports collected before March 4.

The Fed reportedly said that many districts had moderate growth and others experienced "continuing solid levels of economic activity." But, just yesterday (after the March 4 information cut-off date) the Atlanta Federal reserve reported that economic conditions in the Southeast had taken a decidedly downward turn during February.

The Fed reportedly cited gains in home sales as an element of the positive growth picture. Well, they must not have been talking about existing home sales because the last report on this subject, back on February 28, showed that annualized January sales had dropped a whopping 4.1 percent, the fourth consecutive monthly drop. And, they couldn't have been talking about new home sales, because the reports for December and January didn't come out until the day before yesterday and, before December, this indicator dropped for four months in a row. Maybe the Fed fudged a little on the information cut-off date, because the March 11 new home sales report did, in fact, show that sales had risen in December and January. But, you may recall that the data in that report had a plus-or-minus 12 percent uncertainty factor tacked onto it that made it impossible to determine whether the sales rate had gone up or down.

The Fed reported that manufacturing and retailing were mixed. I guess this means that one should draw one's own conclusions regarding these areas. I took a look back at my March 1 report on the National Association of Purchasing Management's monthly nationwide survey of manufacturing firms and found that the NAPM's index of manufacturing activity stood at 45.2 -- well below the 50 level that marks the transition from expansion to contraction in the manufacturing sector. I would conclude that activity in the manufacturing sector is slowing.

The Fed report stated "wage and price pressures are generally described as subdued." This is consistent with the reports I've been reading.

It seems that today's Fed report paints a brighter picture of the economy than has been indicated by day-to-day government and private news releases over the past couple months. Could it be that the Fed has already decided that it will not lower interest rates at its March 26 meeting, and that today's report is evidence of a bias in that direction?

Meanwhile today, speaking before the National Association of Business Economists, Federal Reserve Governor Janet Yellen asserted that the function of the Federal Reserve should not be confined to waging war on inflation.

There's a move afoot in congress to pass legislation that would direct the Fed to restrict its efforts to one, and only one, goal: containing inflation. The Federal Reserve has not taken an official position on the proposed new law. But, Governor Yellen, while acknowledging that containing inflation should be the Fed's primary goal, emphasized that "Stabilization of output and employment is a second appropriate goal for the Federal Reserve." She said, "Monetary policy is needed, and has succeeded, in smoothing the ups and downs of the business cycle, mitigating economic fluctuations and stabilizing output and employment in the U.S. economy."

Byline: Lafferty (MF Merlin)