The U.S. economy has been expanding at a "modest" pace even as labor markets are getting tighter, the Federal Reserve said Jan. 17 in its Beige Book report. The report, to be used by the central bank at its upcoming monetary policy meeting, suggested little change since the last Beige Book report on November 29.

"Most reports from the Federal Reserve District Banks indicated that economic activity expanded at a modest pace since the last report," the Beige Book said, substituting the word "modest" for "moderate" in its prior report.

Manufacturing continued to expand in most districts with Boston, Philadelphia, Cleveland and San Francisco reporting increased activity. Chicago, Minneapolis and Kansas City districts reported slower growth.

While there were some variations in different regions, the report cited growth in most areas in retail sales despite softness in the auto sector. The biggest source of weakness remained the real estate market.

Highlighting concerns about wages and inflation, the Beige Book said the regional banks "generally described labor markets as tightening and cited some examples of businesses having difficulty finding qualified workers." It noted "relatively moderate gains in wages" with some regional banks concerned about costs for other employee benefits.

But some of the inflation pressures have been offset by lower energy costs. "District reports indicated moderate price increases overall as prices for energy and a number of materials eased and kept prices for final goods in check," the report said.