The U.S. economy is improving after falling into recession last year, but concerns remain about the pace of recovery, the Federal Reserve said on Wednesday in its "beige book" report. 

"Almost all Federal Reserve Districts reported signs of improvement or actual increases in economic activity since the last survey," released in early March, the Fed said in the "beige book," an anecdotal summary of conditions across the country. 

While the overall tone was positive, a few districts expressed qualifications about the pace of the recovery or the strength of their regional economies," the Fed said. 

The report said the Federal Reserve Bank of Cleveland, one of the Fed's dozen regional banks, saw economic conditions improving but that the rate of gain had "slowed considerably" from earlier in the year. The Kansas City and Dallas Fed banks also said their regional economies were "still weak." 

Fed decisionmakers will mull the report, along with other economic data, as they meet to set interest rate policy on May 7. The hopeful yet guarded tone of the beige book report may reinforce expectations that the central bank is likely to hold off on raising rates until it is certain the economy is on a solid growth path. 

The report found most regions saw retail sales increase or hold steady and all areas saw improvement in the hard-hit factory sector. It noted, however that labor markets remained "slack" and that manufacturers' plans to invest in new equipment, something policymakers are watching closely, "remained limited." The report was prepared by the Kansas City Fed bank based on information collected before April 16. 

"Demand for labor showed signs of firming in several districts but was still reported as weak in others," the Fed said. Apart from skilled health care workers, there were "few reports" of worker shortages, according to the report. 

A pullback in business investment led the economy into a recession that began in March 2001 and economists expect spending on new equipment to increase later in the year, as companies see a return to profitability. Earlier Wednesday, Fed Vice Chairman Roger Ferguson told a Congressional panel industrial output was up and "various surveys of business conditions suggest that orders are rising." 

But the beige book's regional reports suggested any upturn in investment is likely to be uneven so far. 

"Kansas City reported a similar number of firms expected to increase as to decrease capital expenditures over the next six months. Philadelphia reported that manufacturers have raised capital spending plans, on balance, but that the planned increases have been spotty and concentrated mainly in the chemicals and plastics industries," the Fed said. 

One factor giving the Fed some breathing room before it has to consider raising rates is a benign inflation picture. Wednesday's report continued that theme, noting retail prices were flat, even though steel producers, affected by the Bush administration's decision to slap tariffs on some steel imports, boosted their prices sharply. 

The report also found loan demand at banks little changed from the previous survey. While the business real estate market was described as "generally weak," residential real estate was strong in most areas.