updated 1/13/2010 4:56:25 PM ET 2010-01-13T21:56:25

The economic recovery is spreading to more parts of the country even as a growing number of people can't find full-time jobs.

The duality of the recovery is underscored in a Federal Reserve survey released Wednesday: The economy is growing, and the recovery is extending its reach geographically. Yet 27 million people are either unemployed, forced into part-time jobs or so discouraged that they've stopped looking for work.

The Fed said that while the economy is still sluggish, conditions have improved modestly. But it also said the job market in most of the Fed's 12 regions remained "soft" as the new year began.

In a worse-than-expected report last week, the government said companies chopped 85,000 jobs in December. The unemployment rate held steady at 10 percent — but only because more than a half-million people gave up their job searches and left the work force. If they hadn't dropped out, the unemployment rate would have jumped to 10.4 percent, analysts say.

Counting the people who have given up looking for work and the part-time employees who would rather be working full-time, the so-called underemployment rate edged up to 17.3 percent in December. The record high is 17.4 percent, reached in October.

The Fed's survey painted a picture of an economy growing modestly. To drive down the unemployment rate, the economy needs to grow consistently at a robust pace.

"The bottom line: The U.S. economic recovery continues to unfold. Slooooowly," economist Jennifer Lee of BMO Capital Markets wrote in a note to clients.

Still, economic improvements are spreading to more corners of the country. Ten of the Fed's 12 regions reported that activity had increased or conditions had improved. The remaining two -- Philadelphia and Richmond — described economic conditions as mixed.

In the Fed's previous survey issued in early December, eight regions said activity had increased or conditions improved, while four said they were little changed or mixed.

The new survey found that manufacturing activity increased or held steady in most Fed regions. Factories in the Fed regions of Boston and Chicago said they were benefiting from rising demand from customers in Asia.

And manufacturers in the San Francisco region said demand for semiconductors strengthened, while demand for airplanes and parts stabilized at a moderate level. Factories in the New York region boosted production and offered an optimistic outlook. But factories in the Fed regions of Richmond, Atlanta and St. Louis said production sagged.

Consumers spent more during the holiday shopping season, but the gains were relatively small, the Fed survey found.

"Consumers were variously described as cautious, price sensitive and focused on necessities but sometimes willing to spend on discretionary purchases," the survey found.

High unemployment and tight credit are expected to keep consumers cautious about spending in the coming months, slowing the recovery.

To sustain the recovery, the Fed is expected to leave a key bank lending rate at a record low near zero when it meets next on Jan. 26-27. The Fed has kept rates at those levels for just over a year, with the goal of enticing consumers and businesses to boost spending.

But the Fed survey found that demand for loans declined or stayed weak in most regions, while credit quality deteriorated.

The housing market, meanwhile, is healing, though most sales involved lower-priced homes and were helped by a federal tax credit for buyers. And in most parts of the country, home building stayed at low levels.

The commercial real-estate market remained soft across the nation, with vacancy rates rising and rents falling in most places.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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