Economic conditions improved in December, with retailers in most regions of the U.S. reporting a better holiday season than a year ago, according to the Federal Reserve’s Beige Book, released Wednesday.

This story first appeared in the January 14, 2010 issue of WWD. Subscribe Today.

Based on anecdotal reports from stores, the Fed said: “Conditions have improved modestly…and those improvements are broader geographically than in the last report.”

Ten of the Fed’s 12 districts reported better economic conditions, compared with eight districts in the last Beige Book report released in early December.

Most regions said holiday spending increased compared with the sharp downturn in 2008, but had not rebounded to 2007 levels. Retailers in San Francisco and Philadelphia said 2008 sales were so low compared with previous years that even better 2009 numbers did not signal a major improvement.

Retailers described shoppers as cautious, price-sensitive and focused on necessities. Two districts, Cleveland and Richmond, reported sales for the 2009 holiday season were worse than the previous year.

Given the overall conditions, one Boston retailer said, “People are not going to be so quick to go into debt in order to buy a $1,000 handbag.”

Luxury products struggled in many regions. New York retailers said cosmetics and fragrances did well during the holidays, but fine jewelry was one of the weaker categories. Kansas City, Mo., stores also said sales of jewelry and other luxury items were weak. Retailers in Cleveland said shoppers were looking for “value-priced substitutes” and necessities in December, instead of discretionary items.

Entering the holiday season, retail inventory was still lean in almost all districts, according to the report. Stores in Chicago reported running out of some high-demand products during the holidays.

Significantly, the job outlook in most cities did not markedly improve. Only a handful of districts reported modest increases in wages or hiring. The national unemployment rate is 10 percent.

Meanwhile, in U.S. stock markets on Wednesday, investors warmed to retail stocks, pushing the sector up 0.7 percent after three straight losing sessions.

The S&P Retail Index rose 2.78 points to 411.38 and the Dow Jones Industrial Average increased 0.5 percent, or 53.51 points, to 10,680.77, as health care stocks rose and investors looked toward quarterly profit reports from financial firms.

Retail gainers included Coldwater Creek Inc., up 8.1 percent to $5.23; Saks Inc., 4.6 percent to $7.32; The Dress Barn Inc., 3.8 percent to $25; The Talbots Inc., 2.9 percent to $10.45; AnnTaylor Stores Corp., 2.2 percent to $13.28; J.C. Penney Co. Inc., 2.1 percent to $25.90, and Aéropostale Inc., 2 percent to $34.90.

International markets were mostly down for the day with the SSE Composite Index off 3.1 percent to 3,172.66 in Shanghai, the Hang Seng Index down 2.6 percent to 21,748.60 in Hong Kong, the Nikkei 225 sliding 1.3 percent to 10,735.03 in Tokyo and the FTSE 100 down 0.5 percent to 5,473.48 in London. The CAC 40 rose fractionally to 4,000.86 in Paris.

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