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Fed sees economy picking up all across U.S.

The economic recovery is finally spreading to all parts of the country. But the modest pace suggests companies won't be ramping up hiring to quickly drive down unemployment.
/ Source: The Associated Press

For the first time since the beginning of the recession, economic growth — modest and fragile, but growth nonetheless — has spread to every corner of the country.

A survey released Wednesday found economic activity was improving across all 12 regions of the nation tracked by the Federal Reserve. It was the first clean sweep in the report since 2007.

Metal producers in Chicago and St. Louis cranked out more steel. Makers of drugs and medical equipment in the Northeast did better business. And sales of summer clothes were strong in fashion-conscious New York.

Still, the pace of growth in most parts of the country was described as modest. That's a sign that companies probably won't starting hiring again anytime soon in great enough numbers to bring down the unemployment rate.

"It's kind of like having more people sign up to run in the Boston Marathon but no one is running very fast," said Brian Bethune, economist at IHS Global Insight. "You have more people in the race, but they are all running slowly."

Fed chief Ben Bernanke sounded a similar note in testimony Wednesday before Congress, telling lawmakers that the economy will probably plod ahead in the coming months, producing limited growth.

Bernanke said the debt crisis in Europe, which has rattled the U.S. stock market since April, was unlikely to seriously harm the American recovery as long as Wall Street stabilizes.

He also predicted only a slow reduction in the unemployment rate, which stands at 9.7 percent, slightly lower than its quarter-century high.

The Fed's region-by-region survey, traditionally known as the Beige Book, provides a unique snapshot of the nation as viewed from what you might think of as the economic trenches.

The central bank's 12 regional arms have their people fan out to gather information from businesses and talk to local economists and experts on the markets. The result is a much more intimate look at the overall economy than broad statistics provide.

At the low point of the recession, all 12 regions reported shrinking economic activity.

This time around, the survey found that manufacturing was picking up, retail sales and housing were growing, and tourism was improving. Housing was helped by a tax credit for homebuyers that expired in April.

Commercial real estate, on the other hand, was weak. And while shoppers spent more freely, they stayed focused on the necessities, not big-ticket buys.

The Fed report backed up other recent signs that the job market is slowly improving. More people quit their jobs in the past three months than were laid off — a sharp reversal after 15 straight months in which layoffs exceeded voluntary departures.

Some of the quitters are leaving for new jobs, while others have no firm offers, but their newfound confidence about landing work is a good sign for the economy.

"The hangover is kind of over," said David Adams, vice president of training at Adecco, a national staffing agency. "It's really starting to move toward a market where the employee can have a lot more confidence making a move."

The last Beige Book report showed economic conditions improving in every part of the country but one, the Fed's St. Louis region. The new report has the heartland area joining the rest of the country, helped by strong metal production.

In the Fed's Atlanta region, which includes much of the Southeast, businesses reported modest improvements, but they expressed uncertainty about the economic fallout from the oil spill in the Gulf of Mexico and record flooding in Tennessee.

The survey will figure into the deliberations when Bernanke and his colleagues meet later this month. They are expected to leave interest rates near record lows to keep encouraging the fragile recovery.

Inflation isn't much of a problem for the economy right now. Companies are hesitant to jack up prices when shoppers are so cautious, and employers aren't handing out hefty pay raises, either.

Economists predict it will take at least until the middle of this decade to recoup the more than 8 million jobs wiped out by the recession and bring unemployment down to a more normal 5.5 percent to 6 percent.