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Beige Book: Economy expands at moderate to modest pace

The economy is expanding at a modest to moderate pace, the Federal Reserve reported in its latest Beige Book.

Consumer spending is up in all the Fed districts, and manufacturing is expanding, the report said. All districts also reported job growth.

The report also showed that price pressures are contained generally. That said, higher prices were noted for meat, dairy and construction materials, and six Fed districts reported that those higher prices were being passed along. There was also modest wage pressure noted.

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The Beige Book is a monthly report from the Fed on economic situations in each of the twelve Federal Reserve Districts.

The U.S. central bank said five of its 12 districts described the pace of growth as "moderate," with the remaining districts viewing the expansion as "modest."

"Most districts were optimistic about the outlook for growth," the Fed said.

The report, compiled by the Federal Reserve Bank of Kansas City from data collected before July 7, fits in with employment, manufacturing and other data that have pointed to strong growth in the second quarter and buoyed the economy's prospects for the remainder of this year.

Output contracted sharply in the first three months of the year as the economy was slammed by bad weather, a slow pace of inventory accumulation and the end of long-term unemployment benefits.

The Beige Book found that consumer spending had increased in recent weeks in most districts, with automobiles dominating sales growth. Manufacturing continued to improve in all districts, with growth occurring across many sub-sectors, the Fed said.

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Not only were labor market conditions improving in all districts, employers in several districts were finding it difficult to find skilled workers, it said. While that had pushed up compensation in those areas, overall wage pressures remained contained.

During semi-annual congressional testimony on Tuesday and Wednesday, Federal Reserve Chair Janet Yellen said that she was "optimistic" on the slowly growing economy but that the Fed's job is not finished and it must provide "a great deal of accommodation."

On Wednesday, she said that continued low interest rates could create asset bubbles in certain pockets, such as the biotechnology and social media sectors that the Fed had called "substantially stretched" in Tuesday's report.

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—By CNBC.com. Reuters contributed to this report.

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