Economic activity in the Federal Reserve's Fourth District, which includes Western Pennsylvania, Ohio and parts of Kentucky and West Virginia, "weakened markedly" since October, according to the Fed's periodic survey of regional banks, known as the "Beige Book," which was released yesterday.

Residential construction remained a drag on the regional economy and commercial builders, which had been more optimistic in the past, said they also expect a slowdown in business through at least the first half of next year.

Credit remains available to home buyers, especially from community banks, although lending standards have tightened, rates have increased, and banks are requiring higher down payments.

Manufacturers reported that the prices they pay for raw materials have declined. And while they expected that cost pressures will continue to subside, half of those surveyed said they have either laid off employees or intend to do so in the near future.

Staffing firms reported that job openings in the region were flat to slightly down, with openings concentrated in health care and financial services.

The uncertain job market perhaps can be blamed in part for the reportedly poor retail sales figures. District retailers don't expect things to improve and were prepared for a relatively weak holiday shopping season.