Fed: Economy growing, but has lost momentum

The latest findings from the Federal Reserve paint a picture of an economy that is still recovering, but has lost some steam.

Business contacts in cities across the nation have told Fed officials that economic activity is slowing down or holding steady at a modest pace of growth.

Of the 12 Federal Reserve Districts surveyed by the central bank, just one reported an uptick in growth.

The take from the business community reflects the recently downgraded expectations of the Fed as it releases the latest version of its "beige book."

Following its most recent policy-setting meeting, the Fed reduced its expectations for economic growth to between 2.7 percent and 2.9 percent in 2011, down from the 3.1 percent to 3.3 percent estimate it held in April.

The book, released eight times a year, consists of anecdotal takes of Fed officials about the economy, taken from discussions with local business leaders.

As job growth in the U.S. has turned anemic in recent months, the Fed found that labor market conditions remained "soft" in most areas of the country. Some areas reported small gains in hiring, but only in specific sectors like advertising and manufacturing.

Consumer spending was up overall, driven by "modest growth" in retail sales in most districts. The Fed suggested that falling gas prices could have encouraged more shopping trips and increased spending. However, the continued spike in food and other commodity prices continues to squeeze retail margins.

As it has been for several beige books now, the real estate market continued to struggle nationwide. While some districts reported a slight boost in activity, overall the sector of the economy that drove the downturn remains a weak spot.

In addition, auto sales have slowed down, as inventories continue to remain full following the supply chain disruption caused by the natural disaster in Japan.

In Minneapolis, business contacts said the recently resolved state government shutdown temporarily slowed growth.

In areas heavily reliant on agriculture, several districts reported that drought and flooding conditions have had a negative effect on their crops. However, energy and mining activity was on the uptick, except for a weakness in coal production.