Fed sees housing, manufacturing improving

updated 2:24 p.m. ET Oct. 21, 2009

WASHINGTON - Improvements in housing and manufacturing are driving the early stages of the economic recovery, according to a Federal Reserve survey released Wednesday.

The Fed's latest snapshot of business conditions nationwide found "many sectors" of the economy either stabilized or logged modest improvements over the last six weeks. The pickups, though, often were from "depressed" levels of activity.

Still, the new report adds to evidence that a recovery has started from the worst recession since the 1930s.

An $8,000 credit for first-time homebuyers boosted the housing sector. There's been concern among private economists and some lawmakers that recent gains in housing will fizzle out when the credit ends. It is slated to expired Nov. 30, although some in Congress are mulling an extension.

Meanwhile, factories increased production as businesses restocked depleted inventories. Part of that restocking was due to the now-defunct Cash for Clunkers rebate program, which caused a brief burst in car sales.

Both housing and manufacturing continued a "pattern of improvement that emerged over the summer," the Fed observed.

By contrast, the Fed said weakest link in the recovery was commercial real estate. Conditions were described as "either weak or deteriorating" across all 12 regions surveyed.

Consumer spending also remained weak, the Fed said.

Consumers, whose spending accounts for about 70 percent of economic activity, are expected to stay cautious given rising job losses, stagnant incomes and hard-to-get credit.

The nation's unemployment rate climbed to a 26-year high of 9.8 percent in September, and is expected to top 10 percent this year. Economists predict it will rise as high as 10.5 percent by the middle of next year before slowly drifting down.

In a separate report, the Labor Department found that unemployment rose in 23 states last month. While layoffs have slowed, companies remain reluctant to hire. Forty-three states reported job losses in September; only seven gained jobs.

Many analysts believe the economy started to grow again in the third quarter at a pace of at least 3 percent, and is continuing to expand now. The government releases third-quarter results next week. If analysts are right, that would mark a turning point for the economy, which has contracted for a record four straight quarters.

The central bank's survey findings will figure into discussions when Fed Chairman Ben Bernanke and his colleagues meet Nov. 3-4. The Fed is expected to keep interest rates at record low at that time and probably into next year to help foster the recovery.

Known as the Beige Book, the survey does not include precise figures, but rather offers anecdotal snapshots of economic and financial activity nationwide.

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