Economy Remains Sluggish, Fed Says

High Fuel Costs Stress Businesses

Weaker attendance at Broadway theaters. Cutbacks at retailers in the southeast. A residential real estate market that is still in the dumps throughout most of the nation.

A new report from the Federal Reserve paints a portrait of a U.S. economy under pressure from almost every direction -- growth is slow, consumers and businesses are stressed by high fuel prices and banks are more reluctant to lend money.

"Economic activity remained generally weak in late April and May," said the Fed's "beige book," a compilation of anecdotal reports from businesses across the country. Three of the Fed's 12 regions reported economic activity that was "softer, weaker, or lower," and four reported "slower, sluggish, or modest" growth. The remaining districts described their regional economies as little changed in recent weeks.

The stock market, battered all day by high oil prices, fell even further after the beige book was released at 2 p.m. The Dow Jones closed down 206 points, or 1.68 percent, and the tech-heavy Nasdaq fell nearly 55 points, or 2.24 percent. The broader Standard & Poor's 500-stock index was down almost 23 points, or 1.69 percent.

The Fed report suggests that the experience of ordinary businesses matches up with recent economic data, which has showed an economy that is not in desperate shape but in which Americans are facing multiple challenges at once.

For example, business contacts told the Fed that "rising energy and food prices contributed to softer sales in other categories."

The job market is deteriorating, too, with the Richmond Fed, which covers an area from South Carolina to Maryland, reporting that temporary services were cutting back, as were retailers.

Evidence on the housing market continued to be soft across the board, or "generally weak across most of the nation," the beige book said, and "exceptionally weak" on the West Coast.

High fuel prices and strapped consumers have also contributed to new weakness in the tourism business, which until recently had held up well. Besides the negative report from Broadway, hotels in Southern California and Hawaii reported new softness. One upside of high fuel prices: Resorts in the area covered by the Richmond Fed reported an uptick in tourism, as people took trips closer to home.

In a speech Monday night, Fed Chairman Ben S. Bernanke made clear that higher energy costs worried him most, and the impact of high fuel prices was a recurring theme in the beige book, which will be used by Fed leaders to help decide what to do at their next policymaking meeting June 24 and 25. The consensus is that the central bank is likely to leave the interest rate it controls unchanged, as its worries about slowing growth are counteracted by fears of inflation.

The document showed that manufacturers are straining under the costs of higher raw materials and that the record of those prices being passed on to consumers is uneven.

"The one clear message is that input price pressures have intensified since the last report, with some manufacturers reporting some ability to pass on price increases, but retailers reporting mixed results on raising final goods prices," Brian Bethune, an economist at consulting firm Global Insight, said in a report.

The stress from higher prices shows no sign of abating this week. Yesterday, the nationwide average price for a gallon of gasoline rose to a record $4.05 a gallon, and the Energy Information Administration said that oil inventories fell by 4.6 million barrels last week, more than the forecast 1.4 million barrel drop. That sent the price of oil up $5.07, to close at $136.38, on the New York Mercantile Exchange.