By Neil Irwin
Washington Post Staff Writer
Wednesday, April 16, 2008 4:47 PM

The economy is slowing across the nation, the homebuilding sector is tanking more than even the pessimists could have imagined a few months ago, and prices keep rising at an uncomfortably high rate.

Those are the unpleasant conclusions of several government reports today that, together, offer a picture of an American economy being squeezed from all directions.

"Today's news confirms a lot of what we've been hearing and how people have been feeling about the economy," said Mark Vitner, a senior economist at Wachovia.

The stock market rose anyway, after good earnings news from Intel and J.P. Morgan. The Dow Jones industrial average rose 256 points, or 2 percent. The Standard & Poor's 500 index was up 30 points, or 2.3 percent, and the Nasdaq composite up 64 points, or 2.8 percent.

Economic conditions have weakened almost across the board in the past six weeks, according to the "beige book," a compilation of anecdotal reports of business conditions from around the United States prepared by the Federal Reserve.

Consumer spending was "softening across most of the country," said the beige book. The residential real estate and construction industry was "generally anemic," it said. Bright spots in the economy include the tourism sector, which has been buoyed by a weaker dollar that is attracting visitors from abroad, and health care businesses.

Industrial production, a key measure of the economy that is considered in deciding whether a recession has occurred, rose 0.3 percent in March, the Fed said in a separate report. However, the gain resulted from higher energy prices that made output by utilities look higher. For the first three months of the year, manufacturing output was down 0.5 percent, consistent with a recession.

Also this morning, the Commerce Department said that builders started 11.9 percent fewer units of housing in March than in February, a remarkable decline. The number of permits for single-family homes, a particularly useful indicator of building activity, is now down 63 percent from its 2006 peak, according to analysis by consulting firm Global Insight.

Paradoxically, the sharper the decline in home construction, the better it could be for the economy in the long run. There is currently too much supply of houses nationwide, and the less construction there is, the sooner supply and demand will come back into balance. Indeed, demand for homes has dropped so much that even the current depressed level of construction may be too much.

"It's bad news as long as housing starts are falling less than demand," said Christian Menegatti, an analyst at RGE Monitor, an economics research firm.

Even as the economy is softening, the prices consumers pay are rising. Consumer prices were up 0.3 percent in March, the Labor Department said today, driven by sharp increases in the price of natural gas and heating oil. When volatile food and energy prices are excluded, prices climbed 0.2 percent.

So far, businesses have resisted passing along the price increases of their raw materials on to consumers -- which is keeping "core inflation," or price increases of goods other than food and energy, within a zone that the Federal Reserve can live with.

"It's hard for them to pass along higher costs when the consumer is on the ropes," said Menegatti.