WASHINGTON -- The economy continued its slow improvement through the end of July, but gains were spotty and some regions of the United States remained weak, the Federal Reserve Board reported yesterday.

Although the report -- the Fed's so-called beige book -- says that in some ways business conditions were mixed, the overall tone seemd less optimistic than that of the last report, issued June 19, which said the economy appeared to be improving modestly in much of the United States.

The latest report cites evidence that service sector firms and state and local governments were slashing payrolls, and it says the momemtum in home sales during the spring seemed to be fading. Commercial real estate markets were also said to remain listless, and business loan demand remained weak.

On the other hand, the report says manufacturers were seeing some pickup in demand for consumer goods, and many retailers said they were expecting a modest recovery in sales during the second half of the year.

The beige book's findings are based on a survey of businesses in the 12 Federal Reserve Bank districts and serve as a basis for discussions of the Federal Open Market Committee, set to meet Aug. 20.

Analysts said the latest assessment was in line with the Fed's decision on Wednesday to ease credit another notch by lowering the federal funds rate to 5.5%.

"My impression is the regional bank presidents, just like the rest of us, are concluding that the economy is not doing as well as everyone had hoped," said Nancy Kimelman, chief economist for Technical Data in Boston. "Inside the report, there is example after example of how the economy is running into trouble."

But Richard Berner, director of bond market research for Salomon Brothers, said the latest report was not much different from the one in June.

"This one said more or less the same thing -- that things are improving, but at a slow and uneven pace," Mr. Berner said. "The important point is that the recovery has begun."

Six of teh 12 bank districts surveyed said retail sales were flat or edgin up, the Fed report says. In the remaining districts, New York, Cleveland, and Richmond reported sales declines, while Atlanta, Minneapolis, and Dallas cited moderate increases. Most districts reported that demand for manufactured goods was rising gradually. Producers of auto supplies and consumer goods such as appliances, furniture, and clothing said they saw the greatest improvement, while spending on capital equipment by business remained weak.

But job cutbacks by firms in the services sector and by state and local governments were beginning to drag on the economy, the report says. The New York district cited mergers in the banking and airline industries, and San Francisco reported government layoffs as well as continued job losses in defenses, banking, and retail businesses.

Southern California remained especially weak, and there were few signs of improvement elsewhere in the West, the Fed report says. In New England, manufacturers said they were impatient to see clear evidence of a national recovery, and retail sales in the region remained soft.

The farm sector, which has been going strong this year, showed signs of suffering from the hot, dry weather that gripped parts of the East and Midwest. The report says crop yields were expected to be down in the Richmond, Chicago, St. Louis, and Kansas City districts.

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