Fed: Economy Worsens Heading Into Holidays

By Jeannine Aversa

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, known as the beige book, 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: 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%, 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.