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Fed survey: Widespread soft spots in Phila.-area economy

Widespread soft spots in the Philadelphia area's economy surfaced in the latest Federal Reserve survey of regional business activity. The sluggish pace, reported Wednesday as part of the Fed's nationwide Beige Book, affected area manufacturers, retailers, banks, service companies, and real estate businesses.

Widespread soft spots in the Philadelphia area's economy surfaced in the latest Federal Reserve survey of regional business activity.

The sluggish pace, reported Wednesday as part of the Fed's nationwide Beige Book, affected area manufacturers, retailers, banks, service companies, and real estate businesses.

The Fed found similar "slowing in the pace of growth" in Atlanta, Chicago, and New York from late April through most of May. That marked the first time this year that it said the economy had slowed in several U.S. regions. High gas prices weakened consumer spending, and the Japan crisis reduced manufacturing output, it concluded.

Still, the Beige Book said data from the 12 regional Federal Reserve banks indicated that economic activity had generally continued to expand since the last report in mid-April.

Even in Philadelphia, it said, overall business activity had improved, though "the pace has softened."

Most of the Beige Book's details for Philadelphia, sector-by-sector, reflected that weakness.

"We are off the bottom, but it's going to be a slow comeback," a Philadelphia-area real estate agent said. Sales for low- and midpriced homes are stronger than for high-priced houses. Overall, local housing sales for 2011 are expected to be about the same as last year, the survey found.

Perhaps the biggest disappointment was reported by local manufacturers, who early this year enjoyed robust growth in demand for their goods. But in the new report, the Fed said that demand "gave way to two months of easing in the breadth and pace of recovery" from the 2007-09 recession.

In the April-May period, area makers of electronic equipment and instruments, apparel, and rubber goods, among others, reported declines in orders.

Philadelphia-area retailers said sales in the latest Beige Book period were up slightly from the same period last year. While some blamed rainy, cool weather for the sluggish sales growth, one local merchant told the Fed: "Only confidence in the job situation will prompt broader buying."

The nation's jobless rate remains stubbornly high - at 9.1 percent in May, with 13.9 million Americans out of work. That's nearly double the number at the start of the recession.

Nationally, the report confirmed an abundance of recent data that portray an economy whose growth has faltered. Hiring has slowed, orders to factories have declined, and home prices have fallen.

In contrast to Philadelphia, Atlanta, Chicago, and New York, Fed regions in Boston, Cleveland, Richmond, Va., St. Louis, Minneapolis, Kansas City, and San Francisco said growth in their regions remained steady.

The Dallas region was the only one to report accelerating growth. That was mostly because of higher oil prices that benefited that region's energy industry.

The Beige Book, named for the color of its cover, is based on anecdotal information gathered by officials at the 12 Fed regional banks. It is released eight times a year and provides a more in-the-trenches review of the U.S. economy than the flow of monthly and quarterly government statistics do.

Japan's March 11 earthquake and tsunami have disrupted auto production and sales. Many factories in the United States owned by Japanese automakers, including Toyota and Honda, rely on Japanese suppliers for electronic components and other parts. They have had to cut production because of shortages of those supplies.

The Philadelphia View

Highlights from Wednesday's Federal Reserve report on the region's economy in late April and May.

Business activity overall has improved since early April, "although the pace has softened." Expectations for the rest of 2011 are "mostly for slow growth."

Robust demand for manufactured products early in the year "gave way to two months of easing in the breadth and pace of recovery." Less than 30 percent of area manufacturers said shipments and orders rose in May compared with more than half in March and early April.

Retailers reported small year-over-year sales increases; discounters and luxury-goods stores had the best gains.

Loan activity by banks was flat. Bankers said loan demand "will move up slightly, at best" in the near term.

Residential real estate activity has picked up, mostly for mid- and low-priced homes.

Service-sector firms reported modest increases in business.

Price increases for raw materials and supplies were reported by nearly half of the area's manufacturers; less than half of those were able to pass the costs on to customers. But more service firms imposed fuel surcharges.

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