A U.S. Federal Reserve Board report points to an economic recovery that is much improved from last summer’s slump, but still faces hurdles, most notably the housing market.

RBC Economics says that the Fed’s Beige Book report released Wednesday indicates most districts saw “more favourable conditions” at the end of the 2011, with all 12 Fed districts noting some degree of improvement. “This represents an upgrade from the last report in which the pace of growth was characterized as ‘slow to moderate’ and one district reported a decline in activity,” it says.

RBC notes that consumer spending activity was generally favourable, manufacturing activity was reported to be continuing its steady overall expansion, and lending activity edged up. However, residential real estate markets are only seen as holding steady “at very low levels”, commercial real estate markets remained soft, and hiring was reported as being “limited” in most sectors.

Indeed, TD Economics notes that despite the signs of improving momentum, the report also “offers a reminder that the market for owner occupied housing is still in a depression. Given the pivotal role housing plays in the economy – including building, financing and furnishing – this remains a big impediment to a full fledged recovery.”

TD says that it believes the Fed is likely to continue experimenting with policy tools targeted at housing. “This year, for example, the Fed is poised to purchase roughly $200 billion of mortgage bonds with the proceeds of maturing agency debt and agency mortgage-backed securities. Also, last week the Fed took the unusual step of sending Congress a policy brief on the nation’s foreclosure crisis.”

Moreover, it’s not expected to move off its stimulative policy position with housing markets still crippled. “The Beige Book’s anecdotal assessment of the US economy indicates that the general sentiment within the economy has improved along side the recent pickup in the activity data,” RBC says, but it adds that with hiring and housing both remaining weak, and no sign of inflation, “the Fed will be in no rush to pull back from its stimulative policy stance”.