Fed: Economy continues to sour

Central bank's Beige Book says the economy continued to deteriorate across the nation amid grim retail sales and depressed real estate markets.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ben Rooney, CNNMoney.com staff writer

In what direction will gas prices head in the next few months?
  • Down a little
  • Down sharply
  • Up slightly
  • Up sharply
  • Hold steady

NEW YORK (CNNMoney.com) -- Economic weakness continued to spread across the nation as real estate markets remained in distress and consumers kept their pocketbooks closed, according to the latest Federal Reserve report on regional economic conditions.

"Most districts noted reduced or low activity across a wide range of industries, although a few districts noted some exceptions in some sectors," the Fed said Wednesday in the January edition of its Beige Book.

The Beige Book, published eight times a year, is a summary of economic conditions in the central bank's twelve districts.

Wednesday's report noted that retail sales during the last six weeks, even during the heavily-discounted holiday period, were "generally weak," with eight of the 12 districts reporting "heavy discounting."

Meanwhile, the residential real estate market remained under pressure in most districts, with two-thirds reporting weak or declining home sales. Furthermore, home sale cancellations increased and new home construction declined.

Things were not much better in the commercial real estate market, with contacts in the Boston district calling the market "grim and depressing." And the New York district reported that Manhattan's office vacancy rate climbed to its highest level in two years.

While tight credit has impeded overall lending activity, refinancing of home loans increased in several districts, including Cleveland and Chicago, as mortgage rates have eased.

Overall lending activity softened as "credit quality remained a concern in several districts," according to the report.

Unemployment remains a concern with several districts reporting a "general weakening of labor market conditions." Layoffs, hiring freezes and reduced hours were reported in many districts.

Manufacturing activity continued to deteriorate in most regions. Half of the districts reported that businesses have reduced capital spending plans for the next six months.

Bucking the trend, defense and medical device manufactures reported some improvement in the Minneapolis district. And aerospace manufacturing in the San Francisco district held up, according to the report.

In another bright spot, lower energy prices were reported in several districts as oil and gas prices have plummeted from their July highs. And prices for raw materials fell, which resulted in lower input prices for manufacturers in the districts of Kansas, Atlanta and Boston.

Fed action: In response to the challenges facing the economy, which has been officially mired in recession since December 2007, the Fed has been on a drastic rate-cutting campaign.

Interest rate reductions are the central banks main tool for combating economic weakness and limiting the damage from the recession.

Last month, the Fed slashed its benchmark interest rate to a range between 0% and 0.25%, and said it expects to keep rates near that unprecedented low level for some time.

With its main tool nearly exhausted, however, the Fed has taken a number of unconventional steps to increase liquidity and loosen tight credit markets. The central bank launched a program aimed at buying up commercial paper - short-term corporate debt - in an effort to thaw the credit markets. It has also been considering buying long-term Treasurys to bring down mortgage rates.

The Fed's next policy-making meeting is slated for Jan. 27-28. The Beige Book is released two weeks ahead of those meetings.

On Tuesday, Fed chairman Ben Bernanke said that economic stimulus plans being discussed by the incoming Obama administration and the newly elected Congress "could provide a significant boost to economic activity." But he also warned that further bank bailouts may be necessary to bring about a sustained economic recovery. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
15 top executives with $1 salaries Some CEOs and founders agree to salaries of just $1 a year. But once goodies like bonuses and stock options are added in, some of those executives end up taking home many millions of dollars a year. More
Mercedes SL65 AMG: 621 horses of topless power Turn heads as you blow by traffic in this roadster convertible from Mercedes. More
Where the middle class is most unequal CNNMoney looks at the five states with the biggest differences in middle class incomes. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.