The U.S. economy started the new year on weaker footing as recession-shocked Americans retrenched further, forcing retailers to ring up fewer sales and factories to cut back production.
The Federal Reserve's new snapshot of business conditions nationwide widely known as its Beige Book, released yesterday, suggested the country's economic picture has darkened during the past two months. The outlook appears equally dim.
"Overall economic activity continued to weaken across almost all of the Federal Reserve's districts," the report concluded.
Separately, another report by the Commerce Department showed that retail sales fell in December by 2.7 percent, a worse-than-expected number highlighting how rising unemployment, stagnant wages and a continuing housing crisis have undermined one of the basic props of the U.S. economy. For all of 2008, retail sales dipped 0.1 percent, the first annual drop on government records going back to 1992.
To help brace the economy, Fed Chairman Ben S. Bernanke and his colleagues have signaled that they will leave a key interest rate at record-low levels for some time.
In an unprecedented move last month, the Fed ratcheted down its rate to hover between zero and 0.25 percent. The Fed will keep rates in that range at its next meeting on Jan. 27-28 and probably for much - if not all - of this year, economists predict. The Fed also has pledged to use other unconventional tools to revive the economy.
The recession, which just entered its second year, is the longest in a quarter-century and appears likely to be the longest downturn since World War II.
Most retailers reported "generally negative" holiday sales and are cautious about sales prospects in the months ahead, according to the Fed report based on information collected between late November and Jan. 5.
This week, regional department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy; discount clothing chain Goody's Family Clothing also filed for Chapter 11 bankruptcy protection; and luxury department store retailer Neiman Marcus Group Inc. said it was cutting about 375 jobs.
Retailers engaged in "deep discounting" during the holidays, with "sizable" price cuts, while wage pressures were "largely contained," the report found.
"Many retailers became convinced the Grinch did indeed steal Christmas," Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a speech yesterday.
