June 10 (Bloomberg) -- The Federal Reserve said the U.S. downturn may be slowing in almost half of its regions, with the outlook at some companies improving while “stringent” loan conditions and a “weak” labor market persist.

“Economic conditions remained weak or deteriorated further” from mid-April through May, while five of 12 Fed districts “noted that the downward trend is showing signs of moderating,” the Fed said today in its Beige Book business survey, published two weeks before officials issue their next monetary policy decision.

The report lends support to Federal Reserve Chairman Ben S. Bernanke’s congressional testimony last week that while the pace of the U.S. contraction is slowing, the labor market is still weak and the economy may experience further job losses. Prices, except for oil, were “generally flat or falling,” the Fed said.

“Contacts from several districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year,” the central bank said in the report.

The Fed report reflects information collected through June 1 and summarized by staffers at the Cleveland Fed bank. The Federal Open Market Committee next meets in Washington June 23- 24.

The Beige Book projects a “positive outlook,” yet “we have to remember that the housing market still is very soft, the job market remains struggling,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview with Bloomberg Television.

‘Hit Bottom’

“We can’t be fooled into thinking that the recession is over or that we’ve hit bottom,” Bethune said.

Even so, the words “stable” or “stabilize” appeared in some form more than 60 times in today’s report. Many district banks reported that homebuilding “appeared to have stabilized at very low levels,” and some regions indicated that “manufacturing employment levels may soon stabilize,” the Beige Book said.

Earlier today, Home Depot Inc., the world’s largest home- improvement chain, said fiscal 2009 profit may decline less than it had projected, or not at all, reflecting its cost-cutting to cope with a drop in sales.

Texas Instruments Inc., the second-largest U.S. semiconductor maker, raised its second-quarter sales and profit forecasts on June 8, anticipating customers will replenish inventories.

‘Flat or Falling’

“Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling,” the Fed said today. Some employers were freezing or cutting wages or reducing workers’ benefits and hours, the report said.

Still, “several districts saw signs that job losses may be moderating,” and staffing firms “reported some modest signs of recovery,” the Fed said.

Commercial property vacancy rates increased in “many parts” of the U.S., and developers had more trouble getting financing for new projects, the Fed said. Lending was “stable or weak” in most areas yet “with mixed results across loan categories.”

“Credit conditions remained stringent or tightened further,” the Beige Book said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net.

Last Updated: June 10, 2009 15:34 EDT