Beige Book sounds bleak

NEW YORK, June 11 (UPI) -- The U.S. economy shows signs of improvement but some fundamentals remain weak, the U.S. Federal Reserve said in its periodic "Beige Book" report.

Some of the basics of a flowing economy remain sluggish the Fed said. Overall, credit conditions remain "stringent" and in some of the 12 Federal Reserve regions credit "tightened further," the Fed said Wednesday.

The report, which covers mid-April through May, said Main Street remains wary "as consumers focused on purchasing less expensive items and shied away from buying luxury goods."

Automobile sales and travel remained a slump while vacancy rates for commercial properties remain elevated. Manufacturing declined further or held to a low level across most of the country, the report said.

In a worrisome development, the healthcare sector, which has remained relatively robust throughout the recession, reported both job cuts and "lower patient volumes," the Fed said.

On the positive side, eight regions reported "an uptick" in home sales and five reported fewer homes languishing on the market, which indicated home prices could rise. Credit quality, however, showed signs of deterioration in four districts, while Fed banks in New York and Cleveland said delinquencies were on the rise on many loans, especially mortgages.

The so-called Beige Book report is based on business surveys and traditionally does not wade into policy issues, leaving economists clues, but no direct hints of what the Open Market Committee will do at its next policy pow-wow.

The bank-to-bank lending rate is set at zero to 0.25 percent, about as low as it can go. But the policy of buying mortgage-backed securities seems to have run its course, as mortgage interest rates that hit historic lows in recent weeks have begun to rise.

On the consumer front, the Fed said prices for goods were "flat or falling" at all stages of production, but jobs and wages remained sluggish.

In the financial sector and beyond, the U.S. Treasury assigned Washington lawyer Kenneth Feinberg the task of setting pay limits for executives of bailed out companies, including American International Group Inc., General Motors, Citigroup Inc., and Bank of America Corp.

For now, the salary and bonus mandates Feinberg sets for the company's top executives will have little impact on firms not involved in emergency assistance programs, but the Obama administration will push for a bill to give shareholders greater leverage in setting corporate pay scale, The Washington Post reported Thursday.

"By outlining these principals now, we begin the process of bringing compensation practices more tightly in line with the interests of shareholders and reinforcing the stability of firms and the financial system," Treasury Secretary Timothy Geithner said in a statement.

In global markets, Asia turned in mixed results Thursday with Japan's Nikkei 225 off 0.1 percent and the Hang Seng index in Hong Kong up 0.03 percent. The Singapore Straits Times fell 0.39 percent, while the S&P/ASX in Australia rose 0.57 percent.

In midday trading in Europe, the DJStoxx 600 index gained 0.67 percent, the FTSE 100 in London rose 0.39 percent and the DAX 30 in Frankfurt rose 0.53 percent. The CAC 40 in Paris also gained, adding 4.55 points or 0.14 percent.