The economy improved in most large American cities in June and July, but only modestly, the Federal Reserve said Wednesday.

Federal Reserve chair Ben Bernanke has signalled that the Fed will hold rates at record lows for the time being. (Larry Downing/Reuters)

In its latest "beige book" report of economic activity in the agency's 12 regional offices, the Fed painted a picture of a U.S. economy in danger of running out of steam.

The beige book is a guideline for when the Fed holds its two-day policy meetings to set interest rates, the next one of which is scheduled to begin on Aug. 10.

Federal Reserve chair Ben Bernanke has signalled that the Fed will hold rates at record lows at that time and probably well into next year to help energize the recovery.

In most districts, retail sales posted strong gains, but construction and housing remained weak. The Atlanta district, which includes the Gulf Coast area of Florida and Louisiana, noted concerns that leisure travel activity has dried up in the wake of the Deepwater Horizon oil disaster.

Manufacturing was generally higher, but auto sales were generally lower. The housing market turned more sluggish after homebuyer tax credits expired in April.

Of the 12 regions tracked by the Fed, the survey said growth held steady in Cleveland and Kansas City, but slowed in Atlanta and Chicago. Economic activity elsewhere was described as modest.

The data was collected from the 12 member regions on or before July 19.