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Fed: Economy stabilizing in some regions

The economy is finally beginning to show signs of stabilizing in some areas of the country, bolstering hopes of a broader-based recovery this year.
/ Source: The Associated Press

The U.S. economy is finally showing signs of stabilizing in some regions of the country — especially in parts of the Northeast and Midwest — bolstering hopes of a broader-based recovery this year.

A Federal Reserve snapshot of economic conditions issued Wednesday found that most of the Fed's 12 regions indicated either that the recession was easing or that economic activity had "begun to stabilize, albeit at a low level."

The economy remains fragile. But the fact that some Fed regions reported signs of activity beginning to level out raises hope that the recession, which started in December 2007, is drawing to a close.

Four Fed regions — New York, Cleveland, Kansas City and San Francisco — pointed to "signs of stabilization," the survey said. Two regions — Chicago and St. Louis — reported that the pace of economic declined appeared to be "moderating."

Five other regions — Boston, Philadelphia, Richmond, Atlanta and Dallas — described activity as "slow," "subdued" or "weak." Only one region — Minneapolis — indicated that its downward slide in economic activity had worsened.

Combined, the assessments of businesses on the front lines of the economy appeared to be brighter than those they provided for the previous Fed report in mid-June.

The observations in the Fed survey are consistent with an assessment made just last week by Fed Chairman Ben Bernanke: that the economy should start growing in the second half of this year, ending the longest recession since World War II.

Many analysts predict the recession eased considerably in the April-to-June quarter. They're forecasting that the economy shrank at only a pace of 1.5 percent in the second quarter.

That would mark a big improvement from the annualized 5.5 percent drop in the first three months of this year. The government will release the second-quarter results on Friday. Many economists also believe that the U.S. could start growing as soon as the current quarter.

The survey's findings will figure into discussions when Bernanke and his colleagues meet next on Aug. 11-12. The Fed is expected to keep a key bank lending rate at a record low near zero to help nurture a recovery. Economists say the Fed is likely to hold rates at such record low levels through the rest of this year.

Separately Wednesday, the government said orders to U.S. factories for big-ticket durable goods plunged in June by the largest amount in five months, reflecting the troubles in the auto industry and a steep drop in demand for commercial jets.

Overall, orders fell 2.5 percent, much larger than the 0.6 percent decline economists had expected. Orders for commercial aircraft, dampened by the global recession, plunged 38.5 percent.

In the Fed report, manufacturing activity showed "some improvement" in the Richmond, Chicago and Kansas City regions. The regions of St. Louis and Dallas said the rate of decline in factory activity is moderating. The Philadelphia and Minneapolis regions saw manufacturing activity drop, while the rest of the regions described activity at "low levels."

In the factory sector, reports overall suggested that activity "remained subdued" but "slightly more positive" than in the previous survey.

Meanwhile, auto sales were mixed across the country, while travel and tourism was down in a majority of the regions.

Most regions reported "sluggish" retail activity, with shoppers continuing to be price-conscious.

But the Fed regions of Boston, Kansas City and San Francisco reported either "modest sales increases or less negative sales results," the Fed said. The Philadelphia, Atlanta, St. Louis, New York and Dallas regions reported "flat or mixed sales." The remaining Fed regions described them as "soft."

Residential real estate remained "soft" in most Fed regions, though "many noted some signs of improvement." By contrast, commercial real-estate activity weakened further.

Meanwhile, "competitive pressures" were restraining companies' ability to jack up prices. And the weak job market meant companies were more interested in cutting wages than in boosting them. Those observations are consistent with the Fed's prediction that inflation will stay low this year.