U.S. economic conditions stabilized or improved modestly in most parts of the country, according to a Federal Reserve report on Wednesday that suggested the economy was slowly clawing out of a recession.

In its Beige Book of anecdotal reports on the economy, which was prepared at the Federal Reserve Bank of Richmond based on information collected before October 13, the central bank noted improvement in two of the hardest hit areas -- residential real estate and manufacturing.

Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered, the Fed said.

The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector.

The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts, the Fed said.

Labor markets were typically characterized as weak or mixed, although there were occasional pockets of improvement. That assessment supported the view that the worst of the job losses are over, but it may be a while before growth resumes.

The report said the cash for clunkers auto sales incentive program left depleted inventories and slower sales in its wake. Overall spending remained weak in most districts, although some improvements were noted.

In residential real estate, which was at the heart of the credit crisis that sparked the recession, the government's $8,000 first-time homebuyers' tax credit helped to lift sales of low- to middle-priced houses, the Fed said. However, residential construction activity remained weak in most districts.

(Reporting by Emily Kaiser, Editing by Chizu Nomiyama)

Manufacturing