US economy takes turn for worse, Fed report says

Reuters
UPDATE 2-US economy takes turn for worse, Fed report says
Wed Dec 3, 2008 3:56pm EST
By Mark Felsenthal

WASHINGTON, Dec 3 (Reuters) - The U.S. economy took a distinct turn for the worse in recent weeks, with labor markets weakening, consumer spending slumping and price pressures easing, a Federal Reserve report showed on Wednesday.

The Fed's Beige Book, an anecdotal summary of economic conditions based on the central bank's extensive business contacts across the country, portrayed declines in most areas of the economy.

"Overall economic activity weakened across all Federal Reserve Districts since the last report," the Fed said.

Stocks fell as the report added to anxiety about the economic outlook but later rebounded near the closing bell.

Labor markets softened as firms in many districts reported accelerating layoffs, while wage pressures were largely subdued, the Fed said.

Consumer spending declined, with retail sales narrowing and vehicle sales falling off sharply in most regions of the country.

The report was based on data collected before Nov. 24.

Earlier this week, a panel of experts formally declared the U.S. economy in recession since December 2007.

The Fed is expected to its lower benchmark interest rate target by a half-percentage point to 0.5 percent at its next scheduled policy meeting Dec. 15-16.

Some analysts expect the Fed could bring rates down to zero by its following meeting at the end of January as it seeks reverse the economic contraction linked to the collapse of housing markets and a jump in home loan defaults.

Central banks in the euro zone and elsewhere are expected to cut borrowing costs aggressively in coming days as fears of a global recession took hold.

Adding to the gloomy picture, the Beige Book described weak housing markets characterized by reduced selling prices in many regions. Sales were down in most districts, the Fed said.

Credit conditions remained tight and business and consumer lending activity slowed in most districts, the U.S. central bank said.

Manufacturing activity had declined "noticeably" since the last Beige Book in October, the Fed said.

Inflation pressures had largely evaporated with declines in some retail prices and falling prices for energy and many raw materials, the report said.

Comments gathered by the Fed suggested businesses across the country are feeling a high degree of pain.

A Boston contact described the credit squeeze as "murderous." A housing products manufacturer in the Philadelphia region called the industry "at a standstill."

A West Virginia car dealer said he had gone from selling an average of 250 cars a month to six in November. Corporate meetings were being canceled in Southern California and tourist visits and spending have dropped sharply in Hawaii, the report said. (Additional reporting by Emily Kaiser; Editing by Kenneth Barry)

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4 December 2008

Channel News Asia
US economy weakened further in November, says Beige Book
Posted: 04 December 2008 0318 hrs

WASHINGTON: Economic activity weakened across the United States over the past several weeks with most sectors facing pressure, the Federal Reserve said in its Beige Book report on Wednesday.

The report, to be used by Fed policymakers for their December 15-16 meeting on interest rates, indicated a further decline in already grim economic conditions.

"Overall economic activity weakened across all Federal Reserve districts since the last report," the Beige Book said.

The report noted weak consumer spending and auto sales "down significantly" in most regions.

Manufacturing declined and housing remained soft, due to "reduced selling prices and low, but stable, sales activity."

The report came just two days after the National Bureau of Economic Research (NBER), the panel recognised as the official arbiter of business cycles, said the US economy has been in recession since December 2007.

The Beige Book, based on a survey of the 12 regional Federal Reserve Banks, found few bright spots in the economy.

Significantly, the report found credit conditions tightening, further choking off economy activity.

"Lending contracted, with many districts reporting reductions in residential, commercial and industrial lending and tightening lending standards," the Beige Book said.

"Credit standards rose across the nation, with several districts noting increases in loan delinquencies and defaults, especially in the real estate sector. Credit conditions remained tight."

The regional banks described labour market conditions as "weakening," with "subdued" wage pressures.

The report said price pressures were "easing in light of some decreases in retail prices and declines in input prices, particularly energy, fuel, and many raw materials and food products."

In services, which has been fared somewhat better than other segments of the economy until now, the Beige Book cited "weakness across a wide range of services, including advertising, architecture, business support, information technology, legal services and temporary help firms."

The Beige Book said the agricultural sector was "mixed" but also saw some pressures from tight credit and the bankruptcy of a large ethanol producer. - AFP/de