By Paul Kiernan 

WASHINGTON -- The U.S. economy grew "modestly" in the final weeks of 2020, as a resurgence in Covid-19 cases prompted activity in some sectors to slow, a Federal Reserve report said Wednesday.

The Fed's periodic compilation of anecdotes from business contacts, known as the Beige Book, provided the latest evidence that the pandemic dealt a setback to the economic recovery in recent months. Soaring infection rates and efforts to contain the spread of Covid-19 also contributed to the U.S. labor market's loss of 140,000 jobs in December, the first employment decline since the pandemic struck last spring, the Labor Department said Friday.

"Although the prospect of Covid-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions," the central bank said Wednesday. The report said most Fed districts reported that economic activity increased modestly since the previous reporting period, but noted "conditions remained varied."

Two of the Fed's 12 districts reported no growth in recent weeks, while two others reported declines in activity.

The Fed's characterization of economic conditions represented a downgrade from its previous Beige Book report, released Dec. 2, when policy makers described economic growth as "modest or moderate." At that time, business contacts signaled the possibility of a potential slowdown given the surge in Covid-19 infections that was under way.

According to Wednesday's report, parts of the country saw declines in retail sales and in demand for hospitality and leisure services -- the industries hardest-hit by the pandemic. Ski resorts in the mid-Atlantic were open, but operating at reduced capacity and with restrictions on restaurants. One banker in Cleveland noted that delinquency rates were up among hotel operators.

Other sectors, such as manufacturing and residential real estate, remained generally strong. Even in the most-affected industries, some firms that adapted quickly were able to mitigate the damage: One clothing retailer in New England reported a 5% year-over-year increase in November revenue, as online sales more than offset a 30% decline in store traffic.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

January 13, 2021 15:42 ET (20:42 GMT)