Wednesday, April 16, 2008

Economic downturn deepens and spreads

The Board of Governors of the Federal Reserve reported that economic activity across the county "weakened" over the last few weeks.

In its previous Beige Book report six weeks ago, the Fed indicated that the economy had stopped growing and had probably begun declining. The new report is more pessimistic and indicates a deepening and spreading downturn.

From the current report:

Reports from the twelve Federal Reserve Districts indicate that economic conditions have weakened since the last report. Nine Districts noted slowing in the pace of economic activity, while the remaining three--Boston, Cleveland, and Richmond--described activity as mixed or steady.

Consumer spending, transportation services, real estate, construction, and financial services were generally weak, while tourism, health services, and agriculture were bright spots.

The Fed faces some tough choices as inflationary pressures also appear to be building, with wholesale prices up sharply, retail prices up moderately, international oil prices hitting new records, and the dollar falling. Further cuts in interest rates might stimulate the economy but could also add fuel to the inflationary fire.