Consumer spending - which includes retail sales - is a major shaper of national economic activity. But job cuts, sinking home values and cracked nest eggs have made American consumers wary of spending.
At factories, "activity continued to fall" in most Fed districts, with "declines reported across a wide range of industries," the Fed reported.
Activity in the services sector of the economy also declined in most Fed regions. Transportation, travel and tourism-related services were among the industries hit. Meanwhile, the housing market fell deeper into a rut and commercial real-estate markets deteriorated in most Fed regions.
"The tone of this report gave no indication that conditions were about to suddenly improve," said Abiel Reinhart, economist at JPMorgan Chase Bank.
Reinhart now predicts economic activity in the first three months of this year will shrink at pace of 5 percent, worse than the 3 percent rate of decline previously forecast.
Many analysts believe the overall economy, as measured by the gross domestic product, plunged at an annual rate of about 6 percent in the just-completed fourth quarter after dropping by 0.5 percent in the third quarter.
With companies seeing customers' appetites sag, employers throttled back hiring, the Fed report said. They axed jobs, cut workers' hours, froze workers' pay or reduced compensation.
The nation's unemployment rate bolted to 7.2 percent in December, a 16-year high, the government reported last week. For all of last year, a staggering 2.6 million jobs were eliminated, the most since World War II.
The Fed report, based on information supplied by the Fed's 12 regional banks, will figure into discussions by Bernanke and his colleagues later this month when they assess economic and financial conditions.
"The economy is in the midst of a serious recession that seems likely to persist for at least another two quarters," Gary Stern, president of the Federal Reserve Bank of Minneapolis, said in a speech yesterday.
Another report due out today shows that more than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007, with the worst yet to come.
Nationwide, more than 860,000 properties were repossessed by lenders, more than double the 2007 level, according to RealtyTrac, a foreclosure listing firm based in Irvine, Calif., which compiled the figures.
Moody's Economy.com, a research firm, predicts the number of homes lost to foreclosure is likely to rise by another 18 percent this year before tapering off slightly through 2011.
The Associated Press, Bloomberg News and The Washington Post contributed to this article.
