Growth remains generally tepid, though real estate showed improvement and some areas are actually seeing labor shortages, according to the Federal Reserve's latest survey of economic conditions.
Activity expanded at a "modest" to "moderate" pace over the past few months, the Fed said in its Beige Book report Wednesday.
The report comes as the economy struggles to gain solid footing and Fed contemplates tightening monetary policy. Gross domestic product contracted 0.7 percent in the first quarter, and the Atlanta Fed branch is tracking growth at 1.1 percent in the second, though that number has trended higher in recent days amid some supportive data.
Wall Street expects the Fed to begin raising rates in 2015 for the first time in nine years and since it pulled short-term rates to near-zero in late 2008.
Read MoreFed policy helping rich get richer: BlackRock pro
"The Fed is really seeing enough progress in the economy that puts them on a path to be hiking later this year, not at the June meeting in a couple of weeks," Richard Clarida, global strategic advisor at bond giant Pimco, told CNBC. "I think most likely in September. I think there will be a very high hurdle to (delay) it into 2016. I think they'll see enough progress in the labor market and enough expectation of getting up to that 2 percent inflation target that we will get it later this year."
The Fed will be watching Friday's nonfarm payrolls report Friday for clues both to the level of employment and the total jobs created. The unemployment rate stands at 5.4 percent but inflation remains stubbornly low.
"Employment levels were up slightly over the reporting period, with some reports of layoffs," the report said. "Wages rose slightly. Prices were stable or ticked up, although manufacturers in some districts cited lower input prices."
Stocks held their gains after the report while bond yields remained elevated, though off their highs of the session.
The Beige Book "strikes me as one that confirms that the U.S. economy is in modest growth that should allow for the initiation of the Fed crawl," John Vail, chief global strategist at Nikko Asset Management, said in a phone interview. "It's good enough for the Fed."
While the effect of lower gas prices remains mixed, consumer spending did rise in most areas. Commercial and residential real estate prices are higher and loan demand is on the rise as well.
"Most districts reported an uptick in retail spending, and outlooks were positive, with retailers expecting continued sales growth in 2015," the report said. "Overall vehicle sales rose, particularly for trucks and SUVs which auto dealers in some districts attributed to lower gasoline prices."
Manufacturing activity took a few hits, though it was generally steady or increasing in most of the Fed's 12 districts. Kansas City was down "sharply," the report said.
Across other areas, an avian flu outbreak in the Midwest cost $330 million in the Minneapolis district.
In the jobs market, payrolls have been growing more slowly in 2015 than the previous year, but Fed officials reported generally stronger conditions. In fact, eight of the 12 districts reported labor shortages even though wages grew only slightly.
Among sectors, employers hired in manufacturing, while layoffs were reported in coal and gas. Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago and Kansas City all reported labor shortages.
—CNBC.com's Reem Nasr contributed to this report.