Fed report: Recovery steady, but modest

NEW YORK (CNNMoney.com) -- The economy showed continued signs of modest improvement in recent months, the Federal Reserve said Wednesday in its latest snapshot of regional economic conditions.

Economic activity increased or held steady in 10 of the central bank's 12 districts, according to the July edition of the Fed's so-called Beige Book report. The exceptions were Atlanta and Chicago, which reported slowdowns.

"The stabilization of the economy continues," said Doug Roberts, chief investment strategist for Channel Capital Research. "But there's nothing major in terms of improvement, especially if you look at the underlying structural problems in the labor market and housing."

Districts noted better conditions in the services sector, with increases in the freight transportation industry and at consulting firms.

The Fed said most of the districts also welcomed a rise in manufacturing activity, though the pace slowed or leveled off in half of the districts.

Retail sales were a bright spot, suggesting a continued rise in consumer spending. Several districts said that necessities like clothes and food continued to be strong sellers, while big-ticket items moved more slowly. The report showed auto sales fell during the period since the last report in early June.

Housing slump: The Fed said the housing market lost steam following the April 30 expiration of the homebuyer tax credit, and most districts expect construction and home sales to remain limited. The commercial real estate market also remained weak across country.

While the government incentive helped drive down the housing market's excess supply, Roberts said it wasn't enough to spur a real recovery.

"The tax credit was like a painkiller for the housing market, but we'll have to go into surgery to deal with the underlying problems," Roberts said.

Temporary jobs on the rise: Most districts said the overall labor market gradually improved during the early summer months, citing an increase in temporary hiring.

Boston and Dallas, however, said the job market held steady. Gains in Dallas were offset by significant layoffs in the energy sector due to the deepwater drilling moratorium following the BP oil spill in the Gulf of Mexico.

"Temporary hiring doesn't set the basis for a more robust recovery," Roberts said. "It allows the conditions to stabilize a bit, and as long as there's some stimulus, you'll get a muted recovery, but there might not be much after that."