Fed reports early signs that economy may be stabilizing

WASHINGTON -- The Federal Reserve said Wednesday that it is seeing some faint signs the steep plunge in economic activity is starting to level off.

The Fed's latest survey of business conditions nationwide found five of its 12 regional banks reporting a moderation in the pace of the economic decline.

Several regions "saw signs that activity in some sectors was stabilizing at a low level ... (but) overall economic activity contracted further or remained weak," the Fed said.

The survey, known as the beige book, struck a slightly more positive tone than last month's report, which described an economy plunging rapidly after the financial shocks that occurred last fall.

The new survey was based on information each of the regional banks collected in March and early April. It will be used when Fed policymakers next meet to consider their stance on interest rates and other monetary issues on April 28-29.

The Fed is widely expected to keep a key interest rate at a record low of near zero while continuing to supply massive amounts of money to the banking system in the hopes of combating the worst financial crisis to hit the country in seven decades.

Both President Obama and Federal Reserve Chairman Ben Bernanke gave speeches on Tuesday that mentioned some recent signs of progress while cautioning that the recession is far from over.

Information in the Fed survey underscored that view. The report listed a host of problems in the manufacturing, home building, and travel and tourism sectors, but noted some faint signals that the steep fall in activity was starting to moderate.

"Retail spending remain sluggish although some districts noted a slight improvement in sales compared with the previous reporting period," the central bank said.

A rebound in consumer spending is critical since consumers account for about 70% of total economic activity. Consumer spending plunged at an annual rate of 4.3% in the final three months of last year, the biggest decline in 28 years. That was the major factor leading the overall economy, as measured by the gross domestic product, to contract at an annual rate of 6.3%, the worst showing since 1982.