WASHINGTON - The economy's sharp downhill slide eased in the late spring, and hopes for future business activity improved, suggesting that the worst of the recession has passed, according to a government report yesterday.

The Federal Reserve snapshot of economic conditions found that five of the Fed's 12 regions said the "downward trend is showing signs of moderating." Philadelphia was not among the five regions.

In addition, "several" regions said their expectations of future business activity had improved, although they did not see a "substantial increase" through the end of the year. In the last survey, several regions - including Philadelphia - simply noted signs of some stability at low levels.

In the Philadelphia area, manufacturers reported drops in shipments and new orders, with demand especially weak for primary metals, industrial machinery, and electrical equipment. But makers of furniture, metal products, and industrial materials reported some increases in orders.

Philadelphia-area retailers gave mixed reports. Discounters fared better than merchants of luxury goods. Most retailers said they thought consumers "will not step up spending significantly" until employment rebounds. Residential real estate agents and builders reported a seasonal pickup in sales, reflecting demand for lower-priced homes and help from the first-time-buyer tax credit. Car sales were sluggish.

Separately yesterday, the U.S. Treasury said the federal budget deficit soared to a record for May of $189.7 billion, pushing the tide of red ink close to $1 trillion with four months left in the budget year.

The rising deficit reflects increased government spending because of the recession, and billions of dollars spent on bailouts for banks and other troubled companies. For the fiscal year so far, Treasury said, the red ink totals $991.9 billion.