The country has sunk deeper into an economic rut, the Federal Reserve reported Wednesday, reflecting mounting damage from the financial and credit crises.
The Fed’s new snapshot of business conditions around the nation showed economic activity weakened across all of the Fed’s 12 regional districts. Consumer spending – which accounts for more than two-thirds of economic activity – slumped in most Fed regions. Manufacturing also slowed in most areas.
Some businesses had become more pessimistic about the economic outlook, the Fed said.
The survey was released shortly after Fed Chairman Ben Bernanke, in a speech in New York, warned that it would take time for the country’s economic health to mend even if badly needed confidence in the U.S. financial system returns and roiled markets stabilize.
In an unprecedented action last week, the Fed and other major central banks sliced interest rates to prevent the financial crisis from plunging the U.S. – and the global economy – into a long and painful recession.
Many economists believe the Fed might lower its key rate – now at 1.50 percent – again later this month at its regularly scheduled meeting.
Consumers are pulling back, raising the odds the economy will contract later this year and early next year. Some think the economy may have jolted into reverse in the recently ended third quarter. One classic definition of a recession is two straight quarters of contracting economic activity.
Shoppers are becoming more price conscious and credit is even harder to come by, factors sapping sales at the nation’s retailers, the report said. Given this, retailers foresee a “weaker economic outlook, including a slow holiday season,” the Fed said.
Vanishing jobs, shrinking paychecks, dwindling nest eggs and falling home values all are making consumers more cautious and less inclined to spend, slowing the overall economy. Retail sales, auto sales and tourism all turned weaker, the Fed said.
The Fed report is based on information supplied by the Fed’s 12 regional banks. The information was collected before Oct. 6, which began one of the worst weeks in Wall Street’s history.