By Paul Kiernan 

WASHINGTON -- U.S. businesses saw limited evidence of a recovery in recent weeks, with economic activity continuing to decline amid the coronavirus pandemic, the Federal Reserve said Wednesday.

The labor market continued to deteriorate and consumer spending fell further as retailers and restaurants remained largely closed in most of the country through mid-May, the Fed said in its periodic report of anecdotes from businesses around the country known as the "beige book."

"Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery," the central bank said.

The latest edition of the beige book contains information through May 18, some two months after nonessential businesses around the country shut down to help contain the spread of the novel coronavirus.

Leisure and hospitality continued to see the most severe effects of efforts to contain the pandemic. Travel-industry contacts in the Boston area reported that large conventions have been canceled through early fall, costing the hotel industry 200,000 room-nights as a result. A beach-area contact in New England reported a "stark increase in inquiries about bankruptcy procedures from small retailers."

The Fed's contacts in commercial real estate, meanwhile, reported that large numbers of retail tenants had deferred or missed rent payments.

Despite higher prices for some groceries such as meat and fresh fruit, the Fed said, pricing pressures were "steady to down modestly on balance." Weak demand forced sellers to offer discounts for apparel, hotel rooms and airfare, while new safety protocols, personal protective equipment and social-distancing guidelines imposed new costs on firms.

Still, there were a few signs of a nascent recovery in some areas.

In the New York Fed's district, which includes the virus's U.S. epicenter, "business contacts tended to be less pessimistic than in the prior report about the near-term outlook, and those in the manufacturing, construction, real estate, and health services sectors expected modest improvement." While consumer spending continued to decline overall, "there have been scattered reports of a nascent recovery in early May."

And in the Cleveland Fed's district, some retailers started to bring back staff in limited numbers as businesses were allowed to reopen, while one staffing firm reported that his clients were starting to increase hours or bring back laid-off workers.

Firms in several parts of the country reported concerns that generous unemployment benefits might make it more difficult to rehire workers. A federal stimulus law temporarily provides a $600 federal supplement to normal unemployment insurance, which is allowing lower-wage workers who were laid off to earn more money than when they were working.

But unemployment benefits were just one of several challenges. In a survey of firms conducted by the Philadelphia Fed on impediments to rehiring workers, 33% noted fear of infection, 25% noted lack of child care, and 29% pointed to the lure of expanded unemployment benefits.

(END) Dow Jones Newswires

May 27, 2020 15:28 ET (19:28 GMT)