The U.S. economy continued to weaken in March and early April but the speed of contraction was fading amid scattered signs the country's recession may be nearing an end, the Federal Reserve said on Wednesday.
Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level, according to the Fed's Beige Book summary of anecdotal reports from its 12 regional banks.
The survey was based on information collected by the Federal Reserve Bank of Dallas on or before April 6.
This is good evidence that activity is becoming less bad across the country. Granted, things are still bad, but less so. And I'll take that over the alternative, said Jennifer Lee, an economist at BMO Capital Markets.
Wall Street stocks took heart from the guardedly reassuring tone of the report, which breaks a relentless string of depressing news from the closely watched Beige Book.
The Dow Jones industrial average added more than 20 points to stand 50 points higher at 7,970.
Although conditions are still weak right now, there are signs that there is stabilization in certain sectors, said Michelle Meyer, an economist with Barclays Capital. We're clearly still in a deep recession but there are signs that things are looking a little bit brighter.
The U.S. central bank has cut interest rates to almost zero to beat back a severe recession sparked by the collapse of the housing market, but Fed Chairman Ben Bernanke on Tuesday said there were tentative signs the economic decline was slowing.
Fed officials say this massive monetary stimulus, together with unprecedented programs to promote growth by flooding markets with money, should gradually restore growth this year.
In particular, the Fed has tried to boost demand for houses by purchasing mortgage backed securities. This has helped drive home loan interest rates to the lowest level in a generation and the strategy appeared to be gaining traction.
Housing markets remained depressed overall, but there were some signs that conditions may be stabilizing, the Fed said.
Outlooks for the housing sector were generally more optimistic than in earlier surveys, with respondents hopeful that increased buyer interest would lead to better sales.
The survey still painted a bleak picture of an economy reeling from a prolonged recession that has cost millions of jobs, with unemployment rate reaching 8.5 percent last month.
In particular, labor market conditions were described as weak with lay-offs, temporary shutdowns and hiring freezes widespread. The New York Fed, whose banking-heavy district has been hammered by the financial crisis, characterized the supply of available workers as inexhaustible.
Many 2008 college graduates are still looking for jobs, with 2009 graduates now entering the market, it said.
As a result of this economic slack, districts reported downward pressure on prices, including significant discounting among retailers and many service providers cutting fees.
Consumer spending remained soft, but some districts said sales rose compared with the depressed levels in the previous reporting period. Big ticket and luxury item purchases declined, while spending on food and necessities fared better, the Fed said.
Manufacturing, which has also been hurt badly in the slowdown as demand for new cars crashed, continued to weaken across the board in most districts.
Several firms in these sectors noted that demand for products related to autos or housing ranged from 'weak' to 'horrible', the Philadelphia Fed said.
(Reporting by Alister Bull; Editing by Chizu Nomiyama)