Fed sees modest economic improvement

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NEW YORK (CNNMoney.com) -- The economy has shown signs of stabilizing or modestly improving in recent weeks, according to the latest Federal Reserve snapshot of regional economic conditions.

"Reports of gains in economic activity generally outnumber declines," the Fed said Wednesday in the latest edition of its Beige Book. "But virtually every reference to improvement was qualified as either small or scattered."

The Beige Book, published 8 times a year, is a summary of economic conditions in the central bank's 12 districts. It precedes, by about two weeks, the central bank's scheduled policy meeting at which interest rate movement is discussed; the next meeting is scheduled for Nov. 3 and 4.

The housing market and manufacturing activity, which have been improving since the summer, were two bright spots in the October report.

However, commercial real estate remains a concern, with all 12 districts reporting weak or deteriorating conditions in that sector.

The labor market was described as "weak or mixed." But there were "a few encouraging signs" on the jobs front, including a slowdown in layoffs in Atlanta and steady employment levels in the Dallas district.

Doug Roberts, chief investment strategist for Channel Capital Research and author of "Follow the Fed to Investment Success," said the report reflects "a bit of stabilization" in the U.S. economy.

"But there's not going to be a rip-roaring bounceback as some are expecting," Roberts cautioned.

Roberts points out that the sectors where economic activity has improved, housing and manufacturing, are also areas where the government has focused its stimulus efforts.

In the residential real estate market, the Fed said "contacts reported that sales were boosted by the government's tax credit for first-time home buyers."

An estimated 1.4 million tax filers to date have taken advantage of a temporary first-time home buyer tax credit, which is worth up to $8,000. The credit expires at the end of next month.

Manufacturing activity, meanwhile, has been supported by the government's "Cash For Clunkers" program, Roberts said.

The Fed said manufacturing activity in Cleveland, Richmond, Va., and Chicago was supported by "substantial increases in auto and parts production."

However, with unemployment expected to top 10% this year, the outlook for a robust economic recovery is anything but clear.

Consumer spending, which makes up the bulk of U.S. economic activity, remained weak in most districts, the Fed said.

According to the minutes of the previous Federal Open Market Committee meeting, released last week, most monetary policy makers believe that an economic recovery has started. However, they view the turnaround as weak enough for some to advocate additional steps to stimulate the economy.

The Fed has maintained a fed funds rate, the key rate used to pump money into the economy, at historic lows near 0% since early this year. In its most recent policy statement, the Fed said "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."