By LUCA DI LEO
U.S. economic activity rose only modestly in June and the first half of July, the Federal Reserve said in a report Wednesday, in another sign that the recovery may be running out of steam.
In its latest beige book report, the Fed said economic conditions continued to improve in most of its 12 regional districts, but the advances were modest, with retail sales posting only small gains and housing and construction remaining weak. Bank lending, meanwhile, was still tight.
The Fed said overall activity was broadly flat in the Cleveland and Kansas City districts compared to the previous beige book, while Chicago and Atlanta reported that the pace of economic activity recently slowed. The Atlanta district -- which includes Alabama, Florida, Georgia, and portions of Louisiana and Mississippi -- noted concerns about lower leisure travel to the Gulf Coast.
The U.S. economy has been expanding at a moderate pace for most of the past year, gradually recovering from the deepest recession in many decades. However, economic data for June have pointed to a possible slowdown, especially in consumer spending and in an already weak housing sector.
The beige book is a summary of economic activity prepared for use at the U.S. central bank's next policy-setting meeting Aug. 10. The latest report, prepared by the Federal Reserve Bank of St. Louis, examined economic conditions across the Fed's 12 districts based on information collected on or before July 19.
In its previous report, released June 9 and referring to May and April, the Fed said economic activity had improved across all of its 12 districts.
"Manufacturing activity continued to expand in most districts, although several districts reported that activity had slowed or leveled off during the reporting period," the Fed said. Manufacturing has been leading the recovery.
Retail sales reported during the early summer months were generally positive, the Fed said, although the increases were small in most regions. Most Fed districts that reported on auto sales noted declines in recent weeks.
Meanwhile, bank credit remained tight in most of the country and some areas noted soft or lower levels in overall loan demand.
At their last meeting June 22-23, Fed officials trimmed their forecast for U.S. economic growth, citing the deterioration in financial markets that followed Europe's sovereign debt crisis.
Last week, Chairman Ben Bernanke warned there was "unusual uncertainty" over the economy's outlook. He told Congress the Fed, which has already slashed interest rates close to zero, was ready to take further measures to support the economy if necessary.
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Sluggish housing markets were reported across most areas since the homebuyer tax credit expired at the end of April. While Boston and St. Louis reported an increase in May and June home sales on a year-over-year basis, the Fed said some of its contacts noted that these sales may reflect closings of homes under contract by the April tax credit deadline.
"The Boston, Philadelphia, Atlanta, and Kansas City Districts reported that home sales are expected to weaken going forward," the central bank said.
Tourism increased across the Fed districts, but the Atlanta district noted concerns about decreased travel to the Gulf Coast, which has been ravaged by a massive oil spill.
Labor market conditions improved only gradually in most parts of the U.S. The Fed districts of New York, Chicago, Minneapolis, Richmond, and Atlanta all reported improved job market conditions, albeit modestly in some cases. Boston and Dallas reported that employment was steady.
The U.S. economy shed jobs in June for the first time this year and the unemployment rate remained high, adding to concerns that the pace of the recovery could slow in the second half. The number of U.S. workers filing new claims for unemployment benefits jumped in the July 17 week, the latest week for which data are available, reversing declines posted the prior week and signaling there is still little improvement in job-market conditions.