US economy extends 'modest' recovery

The report said inflation and wage pressures remained subdued and that deflationary pressures may still be an issue.

The US economy is showing more signs of firming in an extension of a "modest" recovery from recession, the Federal Reserve said in its Beige Book report Wednesday.

Yet the economy is being held back by troubles in commercial real estate, offsetting improvement in the residential sector, and by "weak or mixed" job market conditions, said the report.

- Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels - said the report, to be used at the November 3-4 policymaking meeting of the US central bank.

- Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered.-

Leading the more positive sectors were residential real estate and manufacturing, the Beige Book said.

The report said that - labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement.-

The latest official data showed a 0.7 percent pace of output decline in the second quarter, with the economy nearly emerging from the slump that led to a hefty 6.4 percent tumble in the first quarter of 2009.

Many analysts see growth returning in the third quarter, but fear that high unemployment may be a continued drag on activity. The jobless rate rose to 9.8 percent in September, a 26-year high.

The Beige Book's mixed outlook could be used to justify an extension of the Fed's ultralow interest rates aimed at stimulating growth. The federal funds rate has been at a record low range of zero to 0.25 percent since last December

The report said inflation and wage pressures remained subdued and that deflationary pressures may still be an issue.

- Districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted - the report said.