Consumers cutting back on spending, businesses trimming jobs, wages
(NEW YORK) The economic decline took a turn for the worse after the market shocks of October. Last month, the problems only deepened.
Only window shopping: Businesses are no longer raising sticker prices for consumer items as inflation has receded since the big drop in oil prices. In fact, many companies are now considering lowering their prices in the months to comeCash-poor Americans, fearful for their jobs and victims of a steep decline in stock prices, pulled back on spending. Businesses laid off workers, cut wages and reduced hours. Real estate developers and owners suffered.
That bleak portrait - effectively a confirmation of the conventional wisdom of the last few weeks - was released on Wednesday by the Federal Reserve in the latest edition of its Beige Book, a regular snapshot of economic conditions across the country.
The Fed survey came just hours after equally grim news emerged about the American services sector, which makes up the bulk of the nation's economic output.
November was the worst month for service industries in at least 11 years, according to a widely watched index from the Institute for Supply Management, which fell to a record low last month.
Economists were also bracing for a report on the job market due today from the Labor Department.
A deep round of layoffs appeared to hit a broad range of businesses last month, and the Beige Book cited widespread job cuts and hiring freezes.
Manufacturing was hit hard in Dallas, and businesses in Boston, Chicago, and Richmond, Virginia, said that demand for temporary workers rose last month.
Some analysts now think that the economy may have lost 300,000 to 400,000 jobs last month alone, a decline that would make it the worst month yet in the current recession. The economy has shed 1.2 million jobs since the beginning of the year.
At the root of the problems is a significant slowdown in spending, as Americans retreat from large-scale purchases and try to save money amid the worst downturn in a generation.
Retail sales fell in most major cities while cars sales 'deteriorated', particularly sales of more expensive cars such as sport utility vehicles.
Compiled through surveys of businesses in 12 major metropolitan regions, the report concluded that overall economic activity weakened from the beginning of October to last week, when the survey period ended.
'Discount stores reported stronger sales volumes than department stores,' the Beige Book said, and sales were lower for furniture, household appliances, electronics and luxury items.
Many retailers are bracing for a painful holiday shopping season that could squeeze their margins further.
Manufacturing activity slowed last month in all 12 districts included in the Beige Book. Both residential and commercial real estate companies reported problems. Vacancy rates were higher in Boston, New York, Richmond, Chicago, Kansas City and San Francisco.
Lending by banks slowed as well, although Philadelphia banks said that they issued more loans last month and Cleveland saw an uptick in loans for businesses.
Inflation, however, has receded since the big drop in oil prices.
Businesses, accordingly, are no longer raising sticker prices for consumer items. In fact, many companies are now considering lowering their prices in the months to come. -- NYT
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