US Economy Weaker In All Regions: Beige Book

Source : The Business Times, October 17, 2008

(NEW YORK) The economy deteriorated throughout the US last month and pessimism about the outlook spread, the Federal Reserve said in its regional economic survey.

'Economic activity weakened in September across all 12 Federal Reserve districts,' the Fed said in its Beige Book report, published two weeks before officials meet to set interest rates.

'Consumer spending decreased in most districts, with declines reported in retailing, auto sales and tourism.'

With the economy weakening under the impact of the year-long financial crisis and housing recession, and consumer prices easing, most investors anticipate the Fed will lower interest rates by a quarter point on Oct 29 as a follow-up to an emergency rate cut a week ago.

The Fed, European Central Bank and four other central banks cut interest rates on Oct 8 in an unprecedented coordinated effort to prevent a freeze in credit markets from causing a global recession. The Fed reduced its benchmark rate to 1.5 per cent.

'The credit crunch has hit Main Street with a Category 5 wind,' said Mark Vitner, senior economist at Wachovia Corp in Charlotte, North Carolina, before the report.

The Beige Book reported declines in most districts for manufacturing, while 'nearly all' districts reported reduction in business for service industries. 'Several' regional banks reported 'their contacts had become more pessimistic about the economic outlook.'

Housing and construction 'weakened or remained low' throughout the country and demand for housing-related goods, building materials and construction equipment remained at 'low levels' in all regions, the Fed said.

'Credit conditions were characterised as being tight across the 12 districts,' with several reporting reduced credit availability for businesses.

Wednesday's report was prepared by the Chicago Fed, based on information collected on or before Oct 6.

The Fed is facing increasing evidence that the US may already be in a recession.

Labor Department figures on Oct 3 showed that payrolls fell by 159,000 in September, the biggest reduction in five years. The unemployment rate was 6.1 per cent, an increase from 5 per cent as recently as April.

Retail sales fell 1.2 per cent in September, extending their decline to a third consecutive month, the longest slump in at least 16 years.

Manufacturing in the US contracted in September at the fastest pace since the last recession.

The Institute for Supply Management's factory index dropped to the lowest level since October 2001, the Tempe, Arizona-based group reported on Oct 1.

'The most recent jobs report has increased the probability of recession,' James Bullard, president of the Federal Reserve Bank of St Louis, said on Tuesday.

The Beige Book reported reduced inflationary pressures across most districts. 'I feel better about inflation,' Federal Reserve Bank of Atlanta president Dennis Lockhart said on Sept 30. 'The weaker economy combined with lower oil and commodity prices should serve to suppress inflationary pressures, especially headline or overall inflation.' - Bloomberg