An economic report which the Council of Governments released this week had a good-news, bad-news quality about it despite an encouraging conclusion that the region's economy showed marginal improvement in the second quarter.

A review by COG shows that while only half of eight leading indicators improved, growth in the region's economy during the second quarter was slightly better than in the rest of the country.

The other four indicators, particularly employment, stood out as reminders that some sectors of the region's economy are still feeling the impact of the recession.

Although improvement was apparent in retail sales, new commercial construction, effective mortgage rates and the inflation rate, signs of a weak recovery were seen in employment and residential construction.

The unemployment rate, for example, rose by a full percentage point to 6 percent, pushing the number of unemployed in the region to 103,800.

A more recent report on unemployment in the region, prepared by the D.C. Department of Employment Services, also connotes a good-news, bad-news scenario. Although the unemployment rate in the District fell from a peak of 11.8 percent in July to 10.7 percent in September, the department noted, compared with last year, "the employment situation of District residents has worsened."

Employment increased also among suburban residents, the Department of Employment Services reported. It cautioned against interpreting changes in labor force statistics for the area, however, because those changes reflect "predictable, seasonal variations in the size of the labor force."

"They do not," the department cautioned, "suggest a cyclical upswing in local economic activity."

Patterns in the growth in retail sales between the second and third quarters tend to support the department's view.

Retail sales in the Washington region registered an increase of 9 percent in the second quarter, totaling $4.8 billion, compared with $4.4 billion in the comparable period last year.

That was a substantial improvement over the first three months of this year when retail sales increased by only 1 percent, COG observed, although it offered no definitive reason for the increase.

"This substantial improvement . . . suggests either a surge of consumer spending or perhaps an increase in the volume of merchandise sold at a considerably low price," the agency said in its economic report.

It's too early for an evaluation of third-quarter retail sales, but results reported earlier in the week by Woodward & Lothrop, the region's leading department-store chain, do not indicate a surge in consumer spending.

Although the company's profits reflected a modest increase from last year's third-quarter income, "sales performance continued to be hampered by the effects of the current economy and the lack of consumer confidence," said Woodies' Chairman Edwin K. Hoffman.

Indeed, sales in this year's third quarter were slightly better than a year ago "mainly as a result of customer response to promotional activities," Hoffman disclosed.

As a result, he added, Woodies' gross margin was "somewhat impacted."

Other retailers may have achieved higher rates of growth in sales and profit. But, Woodies' has managed to hold or increase market share in recent years, and its third quarter report probably reflects a truer picture of the region's retail sector.

In fact, early indications of third-quarter activity in retail sales, employment and other key areas suggest marginal improvements will be repeated in COG's next report.