Fed: Economy Worsens Heading Into Holidays

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.

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, General Motors (GM Quote) and Ford (F Quote) 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.