US economy weak: Fed


May 28, 2010 Updated May 28, 2010 at 6:40 PM EDT

Economic activity in the United States contracted further or remained weak amid prolonged recession, the Federal Reserve said in its Beige Book report Wednesday.

Studies indicate that "overall economic activity contracted further or remained weak" although five of 12 districts surveyed noted a "moderation in the pace of decline," the report said.

Several districts also "saw signs that activity in some sectors was stabilizing at a low level," said the report to be used by the Federal Open Market Committee, the central bank's policy-making body, at its next meeting on April 28-29.

Policymakers in March voted to unanimously hold the Fed's base interest rate at a historically low range of zero to 0.25 percent, where it has been since mid-December, and have suggested the rate would be kept there for quite some time.

Giving a breakdown on the state of health of different sectors, the Beige Book report said that manufacturing activity weakened across a broad range of industries in most districts while nonfinancial service activity continued to contract across districts.

Retail spending -- a key contributor to growth -- remained sluggish although some districts noted a slight improvement in sales since the last report was released on March 4.

The current report, based on information gathered from early March until April 6, said residential real-estate markets continued to be weak.

"Home prices and construction were still falling in most areas, but better-than-expected buyer traffic led to a scattered pickup in sales in a number of districts," it said.

A home-mortgage meltdown that began several years ago triggered financial turmoil that slammed the brakes on economic growth, pushing the world's largest economy into recession in December 2007.

The report said nonresidential real-estate conditions continued to deteriorate, noting that difficulty in obtaining loans was constraining construction and investment activity.

It also said spending on business travel declined as corporations cut back.

Bankers reported tight credit conditions, rising delinquencies, and some deterioration of loan quality.

Agricultural conditions were generally favorable across districts, although drought conditions persisted in the Dallas, Texas, and San Francisco, California districts, it said.

On the energy front, it said reduced demand, high inventories and lower prices led to steep cutbacks in oil and natural gas drilling and production activity.

The labor situation was bad as employment continued to decline across a range of industries, with only scattered reports of hiring.

"Wage and salary pressures eased as labor markets weakened in all districts, and many contacts continued to report job cuts and wage and hiring freezes."

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