WASHINGTON -- Loan demand has remained flat across much of the country this summer, with the economy continuing a slow but steady improvement, the Federal Reserve reported Wednesday.

According to the Fed's periodic report of regional economic conditions, lending has actually softened in some areas, particularly in the Great Lakes states and much of the South.

But mortgage refinancings have surged again in many areas, the Fed's Beige Book reported. And residential construction and real estate activity remained strong in most of the country, although commercial real estate has remained weak.

The Fed prepares the Beige Book several times a year, in anticipation of Federal Open Market Committee meetings. The next meeting is scheduled for Aug. 17.

Mixed Signals

Overall, the survey found "generally sluggish" manufacturing activity, with little expectation for increased employment this year. Retail sales grew unevenly, but car sales strengthened in many regions, particularly the Midwest and South.

Inflationary pressures were slight, but mixed.

Although flooding has devastated much of the Midwest, the Fed said it was likely to have only limited impact on the overall economy. So far, the flood's damage has been "highly concentrated," and has not threatened overall growth in any Fed district, the report said.

Despite the anecdotal reports of soft loan demand, many economists remain optimistic about a pickup later in the year.

"Business loans outstanding is lower than it was a year ago, but the marginal decline has narrowed," said Stuart G. Hoffman, chief economist at PNC Bank Corp. "When this year ends, business loan demand will have come full circle and gotten back to where we were a year ago."

District by District

Highlights of the report, by Fed district, follow:

* Boston: The economy continued to expand slowly, with little inflation. The housing market has improved only modestly.

* New York: Despite improvements in June, July showed "preliminary indications of some retrenchment." Overall loan deman stabilized. Interest rates were steady or lower.

* Philadelphia: Loan demand overall has been stagnant, and overall activity steady. Bankers foresee sluggish loan demand continuing, because of uncertain economic conditions and the possibility of increased taxes.

* Cleveland: Deposits continue to leave banks, causing some to offer new products, such as certificates of deposit with higher-than-market rates. Business lending softened, and consumer loan volume leveled off after a surge in the spring.

* Richmond: Growth has been moderate and uneven. Commercial, consumer, and residential mortgage loan demand was marginally higher, with a pickup in refinancing activity.

* Atlanta: The economy grew modestly, with flat commercial loan demand. Consumer lending, especially for cars and home refinancing, has increased in most areas.

* Chicago: The economy has expanded overall, but flooding has significantly disrupted activity in affected areas. Although the full impact will not be evident for some time, flooding is not likely to threaten overall economic expansion.

* St. Louis: Despite the floods, which will cost the district at least $1.5 billion, much of the area has been unaffected. Banks for the most part have been unaffected by flooding, and many are offering special loan products and low rates to flood victims.

* Minneapolis: Moderate growth, despite the floods. Price levels have remained stable, and construction continues to be one of the strongest areas in the economy.

* Kansas City: Moderate growth, with increasing retail sales, strong housing activity, and a slight pickup in bank loan demand. Demand for home mortgages and commercial real estate loans was unchanged.

* Dallas: Slow expansion, with robust residential construction but slowing loan demand. Home mortgage originations and refinancings "remain a bright spot."

* San Francisco: Continued weakness in California has offset growth in much of the West. Idaho and Utah lenders report excellent conditions, in part due to strong construction lending.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.