Job scarcity in some communities and a backlog of foreclosed properties continue to inhibit the U.S. economy's recovery, a top Fed official said on Tuesday.

Fed Governor Elizabeth Duke said although small businesses are showing more confidence, a backlog of foreclosed homes is delaying the recovery of housing markets, which in turn is holding back the broader recovery.

It's going to be a long time and a multi-year process to clear this, she said in response to questions after a speech.

Duke's comments show that despite signs the U.S. economic recovery is accelerating and job markets are healing, pockets of weakness linger in the world's largest economy after a devastating financial crisis and deep recession.

Duke and her colleagues at the Fed are wrestling with when to remove their extensive support for the economy as the recovery gains speed.

While some policy-makers are worried the central bank could fail to keep inflation in check if it delays tightening financial conditions, the Fed said at its most recent meeting April 26-27 it is in no hurry to raise interest rates or sell bonds while unemployment is high.

The Fed has indicated it is likely to finish its $600 billion bond buying program on schedule at the end of next month. The question of when the Fed should reverse course is up in the air.

Data published since its last meeting showed U.S. companies created jobs at the fastest pace in five years in April, pointing to underlying strength in the economy. However, the jobless rate -- derived from a separate survey -- rose to 9.0 percent on a modest increase in the size of the labor force.

Duke said regional Fed banks have begun collecting data from surveys in a more systematic way. Officials at the central bank hope the results will play a greater role in making decisions about monetary policy, she said.

The lack of jobs was the dominant theme in the first year of data collection, with the majority of respondents identifying unemployment as the primary cause of new distress in the housing sector, Duke said.

The Fed governor cited one participant in a San Francisco Fed survey of community advocates and community developers, who said prolonged unemployment and underemployment are causing a surge in the number of low-and moderate-income individuals and communities.

Unemployment is now the driving force behind most of the other crises we are facing. the respondent told the Fed.

However, Duke said conditions for small businesses, which make up the bulk of U.S. hiring, are improving.

The combination of a variety of recent survey results paints a picture of increasing optimism about future sales and business conditions and a corresponding easing of credit availability for small businesses, Duke said.

( Reporting by Mark Felsenthal, Editing by W Simon and Andrew Hay)

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