WASHINGTON — The nation struggled with slow economic growth and still-high prices that are weighing on consumers and businesses alike as the race for the White House kicks into high gear.

The Federal Reserve's new snapshot of business conditions, released Wednesday, underscored the toll the housing, credit and financial debacles are having on the economy and the challenges likely to be faced by the next president. Problems are expected to persist into next year.

Fed Chairman Ben Bernanke and his colleagues are all but certain to leave a key interest rate alone at 2 percent when they meet next on Sept. 16 and probably through the rest of this year.

Given the fragile state of the economy, the Fed isn't in a hurry to boost rates to fend off creeping inflation. A growing number of analysts believe the economy is likely to hit another dangerous rough patch later this year as consumers and businesses curtail their spending even more.

Heading into the fall, economic activity continued to be slow, the Fed said. Businesses described the climate as "weak" or "soft" or "subdued."

Consumers, the lifeblood of the economy, showed caution. Shoppers "concentrated on necessary items and retrenchment in discretionary spending," the Fed observed.

The Fed regions of Chicago, Dallas and San Francisco, for instance, reported noticeable declines in spending on clothing, electronics and jewelry. Sales of furniture and household appliances, meanwhile, were weak in most parts of the country — victims of the housing slump.

On the inflation front, many businesses and consumers felt the sting of high prices for food, energy and other things. The recent drop in oil prices from a record-high of $147.27 in mid-July does give the Fed more leeway to keep its key rate steady. Oil prices are now hovering above $108 a barrel.

And, while businesses welcomed this drop, they told the Fed that prices still remain elevated. "Business contacts in a number of (Fed) districts indicated that they had increased selling prices in response to the high costs" for certain commodities.

Workers' wage gains — characterized as "modest" — aren't raising inflation worries. Wary employers have cut jobs every month so far this year and aren't inclined to be overly generous in their compensation to workers amid "a general pullback in hiring," the Fed said.

The nation's unemployment rate jumped in July to a four-year high of 5.7 percent. Many economists predict the jobless rate will climb a notch higher — to 5.8 percent — when the government releases the August employment figures on Friday. More job losses also are expected.

The Fed's report also said that manufacturing activity was "weak or declining" in most Fed regions. Demand for housing-related goods and construction materials continued to wane. Although some manufacturers said exports were helping bolster their activity, they also noted "some recent slowing in growth from this source," the Fed said.

Export growth figured prominently in the second-quarter's rebound. Economic growth clocked in at a 3.3 percent pace, the government reported last week. The rebound isn't expected to last, however.

Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.




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