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Fed: U.S. economy struggles
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October 24, 2001: 3:29 p.m. ET
Beige Book report says the economy was weak in September, early October.
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NEW YORK (CNNmoney) - The U.S. economy continued to show signs of stress in September and early October, the Federal Reserve said Wednesday in its periodic Beige Book report of economic conditions, as last month's terror attacks brought a sharp but brief downturn in business activity.
The report, named for the color of its cover, is a compilation of reports of conditions in all 12 Fed districts. It found retail sales, manufacturing and construction fell in September and the first two weeks of October, while job cuts increased.
All aspects of the economy took a turn for the worse immediately after the Sept. 11 attacks on the World Trade Center and the Pentagon, though activity seemed to bounce back quickly, according to the report.
"In all Districts, the tragedy of September 11 was followed by a short period of sharply reduced activity," the report said. "Business activity recovered quickly from some aspects of the shock, such as reduced air cargo capacity, but longer-run effects are more difficult to assess."
Most economists expect the economy, already weak before Sept. 11, to fall into a recession in the second half of the year. To make borrowing cheaper and encourage consumers to spend, the Fed has cut its target for short-term interest rates nine times this year - twice after the attacks - to their lowest level since 1962, and it is widely expected to cut rates again at its next policy meeting, scheduled for Nov. 6.
"The Fed will likely ease on Nov. 6, but the Beige Book has not changed the odds," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. "And it tells us nothing about the future of the economy or Fed policy."
Fed Chairman Alan Greenspan has said repeatedly that he and other economists will need more time to get a clear picture of the impact of the attacks on the economy. He's warned the government against overreacting to the near-term economic situation by enacting tax cuts and spending measures that will hurt the economy in the long run.
Some observers worry that the Fed's aggressive policy, combined with what will likely be a multibillion-dollar economic stimulus package from Congress, could pump too much money into the economy and raise the risk of inflation. But inflation is not a problem now, the Beige Book report said.
"There has been little upward pressure on either wages or prices, and, in some cases, they have actually fallen," the report said.
Click here for CNNmoney.com's economic calendar
In the days after the terror attacks, retail sales were limited mostly to essential items such as groceries and other items "likely purchased in preparation for possible additional attacks," the report said.
General weakness in retail sales continued, but some of that "might have already been in train" before the attacks, the result of a year-long economic slowdown and hundreds of thousands of job cuts.
The grounding of all aircraft in the days after the attacks disrupted supply chains, but those "appeared to recover quickly," the report said. More damaging to long-term productivity will likely be higher insurance premiums and spending on security measures, the report said. 
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