Fed report sees signs of recovery

Updated at 5:45 p.m. ET

Here's the bottom line from the Federal Reserve's Beige Book report, released this afternoon.

Overall economic activity increased somewhat since March across the 12 Federal Reserve districts, except St. Louis, which reported "softened" conditions.

That may explain why Fed Chairman Ben Bernanke was more cautious about the economy than Wall Street, which was enjoying a nice rally today that pushed the Dow Jones industrials ($INDU) up 104 points and the S&P 500 ($INX) past 1,200 for the first time since 2008. 

Reports from several districts described consumers as somewhat more confident. Businesses were cautiously optimistic about future sales.

The Beige Book is a narrative view of the economy gathered by staff of the 12 Federal Reserve banks in advance of the Fed's April 27-28 meeting.

Districts generally reported increases in retail and auto sales. Many reported increased activity in housing markets from low levels. Activity in the banking and finance sector was mixed, as loan volumes and credit quality decreased.

There appeared to be no great rush among retailers to add to inventories. Manufacturing was stronger, except in the St. Louis district, where there were more plant closings than openings.

A big sticking point in many districts was the condition of commercial real estate. Office vacancies are rising, the report said, and commercial construction is very weak. Manhattan Class A office rents were down 20% to 25% year over year.

Confirming that view was Will Oberton, CEO of Fastenal (FAST), a big distributor of industrial and construction products.

On the company's conference call on Tuesday, he said, "We’re not seeing the Targets and the Wal-Marts and all these other strip malls that were being built a few years ago."

While overall labor markets remained weak, there was some hiring activity, particularly for temporary staff, the report said.

The Kansas City district reported that overall employment levels held steady, but more manufacturers and several energy-related firms planned to increase payrolls.

The Kansas City district is currently watched closely because Thomas Hoenig, the president of the Kansas City Federal Reserve Bank, has been calling for the Federal Open Market Committee, the Fed's rate-making body, to start raising rates.