Recovery Is Found |Slow, Uneven'

WASHINGTON - The U.S. economy is recovering at a "slow, uneven pace" amid weak demand for business loans, the Federal Reserve Board said Wednesday.

After improving briefly last spring, home sales are losing momentum, and commercial real estate and nonresidential construction remain weak, the Fed said in its Beige Book, a periodic report on regional economic conditions.

Retail sales, manufacturing, and consumer demand have begun to improve modestly, the report said.

Policymakers to Get Report

The book will be distributed to the Federal Open Market Committee before its policy-setting meeting Aug. 20.

While banks are willing to lend to creditworthy borrowers, there is little appetite for credit, the central bank said.

But industry analysts, reacting to the Fed report, said banks are not actively promoting loans because they are trying to build capital and recover from a period of unusually high writeoffs.

Lenders Lack Aggressiveness

"I'm not sure banks want to be all that aggressive in expanding their balance sheets," said Gary Schlossberg, vice president and senior economist at the principal bank unit of Wells Fargo & Co., San Francisco. He said short-term loan demand will probably remain sluggish for some time as the economy slowly mends. But he expects to see a gradual recovery in business borrowing.

"Borrower, lender, and examiner psyches are scarred by what has happened in the last decade," said James McDermott, president of Keefe Bruyette & Woods Inc. "There's not a lot of interest in taking on debt in this economy."

"Businesses are always slow to borrow coming out of a recession, and this time around, banks are being far more cautious than in the past," said William B. Conerly, vice president and chief economist at First Interstate Bank of Oregon, Portland.

"The game right now is to keep assets off the books and securitize as much as you can," said James Annable, chief economist of the First National Bank of Chicago unit of First Chicago Corp.

"It would be an entirely different situation if bank equity capital were relatively cheap," he added. "Then you wouldn't see this overwhelming effort to hold down the size of balance sheets."

Report Summarized by Fed District

Following are highlights by Fed district from the Beige Book:

* New York: Banks have tightened credit standards in recent months, and borrowers' credit quality has declined. In an unusual aside, the Fed noted that "one large builder reportedly faces bankruptcy because of nonrenewal of a loan for a sizable development he is constructing."

* Philadelphia: "Bankers said a rebound in lending is dependent upon an economic recovery, which they do not believe is firmly established yet."

* Richmond, Va.: "Only scattered signs of a pickup in business loans, despite the revival in economic activity." Lenders said loan standards were unchanged in recent months and saw a small improvement in consumer demand, especially for car loans.

* Atlanta: A rise in loan approvals, and bankers reported improved demand during June and July. Residential and commerical developers continued to have problems obtaining financing, and auto dealers found credit terms tight.

* San Francisco: Mixed conditions at financial institutions. Trouble spots were Hawaii, where borrowers found it difficult to secure financing from mainland or Japanese banks, and California, where loan demand was soft and long-term funds for commercial real estate were scarce. A bright spot was mortgage demand in Oregon and Utah.

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