Fed: Economy weakens across all bank's districts
Thursday, December 4, 2008
WASHINGTON -- The country's economic picture has darkened further as Americans hunkered down heading into the holidays, forcing retailers to ring up fewer sales and factories to cut back on production.
The Federal Reserve's new snapshot of business conditions nationwide, released Wednesday, suggested the economy was sinking deeper into recession.
"Economic activity weakened across all Federal Reserve districts," the report concluded.
The Fed didn't use the word "recession," but just two days earlier the National Bureau of Economic Research declared what many Americans already knew in their bones: that the country had been suffering through one since last December.
To cushion the fallout, Federal Reserve chairman Ben Bernanke said Monday that the central bank is prepared to lower its key interest rate and to explore other ways to revive economic activity. Many economists predict the Fed will cut its rate -- now near a historic low of 1 percent -- at its last scheduled meeting this year on Dec. 16.
"We've seen things fall off a cliff," said economist Ken Mayland, president of ClearView Economics. "Everybody -- consumers and businesses -- are just freezing."
With jobs vanishing, shoppers cut back, causing retail sales to be "weak" or "down" in most of the Fed's 12 regions.
"Retailers were preparing for a relatively slow holiday sales season," the Fed report said. New York retailers said the holiday sales season is likely to feature more discounted prices on merchandise than last year. Some retailers in the Fed regions of Boston, Philadelphia, Cleveland and Dallas planned to cut capital spending projects for 2009.
Consumer spending -- which includes retail sales -- is a major shaper of national economic activity. But job cuts, tanking investment portfolios and sinking home values have made American consumers wary of spending.
ShopperTrak RCT Corp., a research company that tracks total retail sales for more than 50,000 outlets, released more data Wednesday showing that the better-than-expected sales boost on Friday, the traditional opening for the holiday shopping season at stores, fizzled quickly during the rest of the weekend -- resulting in a mixed start to the season.
On Wall Street, investors took the latest batch of grim data in stride. The Dow Jones industrials gained 172.60 points to close at 8,591.69.
The economy jolted into reverse in the summer as consumers slashed their spending by the most in 28 years.
Many believe the economy will continue to shrink through the rest of this year and into the first quarter of next year. At 12 months and counting, the current recession is longer than the 10-month average length of recessions since World War II. The record for the longest recession in the postwar period is 16 months, which was reached in the 1973-75 and 1981-82 downturns.
Besides retail sales, auto sales were down sharply in most Fed regions. Car buyers in many areas had difficulty obtaining financing, a direct result of the credit crisis, the report said.
The chiefs of Chrysler LLC, General Motors Corp. and Ford Motor Co. are preparing to return to Capitol Hill on Thursday and Friday to again make their case for as much as $34 billion in emergency aid.
At factories, "manufacturing activity declined noticeably" since the Fed's last report in mid-October. Similarly, activity in the services sector contracted in most Fed regions.
In a separate report Wednesday, the U.S. service sector, which includes hotels, retailers and other industries, saw activity shrink more than expected in November. The Institute for Supply Management, a trade group of purchasing executives, said readings for new orders, employment and prices all hit the lowest levels on records dating back to 1997.
The Fed's survey suggested that businesses have little appetite to hire.
Employers in the Fed regions of Boston, Richmond, Chicago and Dallas reported that demand for temporary workers dropped. Employers in the regions of Boston and Cleveland also reported that seasonal hiring had been scaled back at retail stores. Employers in Atlanta noted that layoffs have accelerated and workers' hours declined. Employers in the San Francisco Fed region reported job cuts and hiring freezes across a wide range of industries.
The nation's unemployment rate jumped in October to 6.5 percent, a 14-year high. So far 1.2 million jobs have vanished this year and the losses will get worse. Many economists are predicting the jobless rate will climb to 6.8 percent for November and employers will chop another 320,000 jobs. The government releases the new employment report on Friday.
The housing picture continued to look bleak, the Fed report showed.
Sales were down and inventories of unsold homes remained high in most Fed regions. Commercial real-estate markets, meanwhile, "weakened broadly" and pushed up vacancy rates in about half of the Fed's regions, the survey said.
Against this backdrop, both consumer and business lending continued to slow, the Fed said. Despite a $700 billion financial bailout and a flurry of radical new programs, the government hasn't been able to bust through a credit clog that's contributed to the worst financial crisis to hit the country since the 1930s.
The Fed report is based on information supplied by the Fed's 12 regional banks. The information was collected before Nov. 24.