Economy appears to be in healing mode, Fed report says

Economic activity is stabilizing or improving in most of the U.S., according to a government survey released Wednesday.

The Federal Reserve's snapshot of economic conditions backs predictions by Fed Chairman Ben Bernanke and other analysts that the economy has started to grow once again in the current quarter.

In the survey, all but one of the Fed's 12 regions indicated that economic activity was "stable," showed "signs of stabilization" or had "firmed." The one exception was the St. Louis region, which continued to report that the pace of decline in economic activity appeared to be "moderating."

Looking ahead, businesses in most Fed regions said they were "cautiously positive" about the economic outlook.

The assessments of businesses on the front lines of the economy were brighter than those they provided for the previous Fed report in late July. At that time, most regions said the recession was easing its grip and some of them reported signs that activity was leveling off.

In Wednesday's survey, the Dallas region indicated that economic activity had "firmed." The Fed regions of Boston, Cleveland, Philadelphia, Richmond and San Francisco mentioned "signs of improvement." The Atlanta, Chicago, Kansas City, Minneapolis and New York regions described activity as "stable or showing signs of stabilization."

Analysts predict the economy is growing in the current July-September quarter at a 3% to 4% annual rate.

Most of that growth should come from more spending from businesses, which had slashed investments — often by double-digits — during the recession.

Consumer spending, however, is expected to turn up only because of the binge-buying of automobiles generated by the short-lived cash-for-clunkers program. Buyers were given cash rebates to trade in less efficient gas guzzlers.

The Fed's survey found that the majority of regions did report that the government's clunkers program "boosted traffic and sales." But aside from brisk businesses at auto dealerships, other merchants struggled. Consumer spending remained "soft" in most Fed regions.

Manufacturing, meanwhile, reported "modest" improvements. Residential real-estate markets, which were clobbered during the downturn, also flashed signs of improvements. But the commercial real-estate market continued to be a drag in most markets.

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