The Fed Sees A Decelerating Economy

The most recent biege book indicates a decelerating economy. Text in bold is my emphasis. From Market Watch:

U.S. economic activity has slowed over the six weeks, according to the latest Beige Book report on current economic conditions released by the Federal Reserve on Wednesday.

Anecdotal reports from the 12 Fed districts "suggest economic activity continued to expand in all districts in September and early October but the pace of growth decelerated since August," the report concluded.

Five districts: Cleveland, Dallas, Kansas City, Richmond and San Francisco reported slower rates of growth. The other seven districts reported growth similar to the last report in early September.

The Beige Book is a series of anecdotal reports collected to help Fed officials prepare for their monetary policy meetings. The next meeting is set for Oct. 30 and 31. Economists are split on whether the Fed will cut interest rates further after the surprise half-a-percentage point rate cut on Sept. 18.

Federal Reserve Chairman Ben Bernanke has said that anecdotal reports are critical for Fed policymakers at the moment because government statistics are not timely enough to detect the impact of the financial turmoil on the real economy.

Uncertainty and unease seemed to be the two undertones of this report. The comments echo Bernanke's observation on Monday that the outlook for the U.S. economy remains "uncertain." "Contacts in a number of industries indicated a higher-than-usual degree of uncertainty about the outlook for economic activity," the survey found.

"At firms without direct ties to real estate and construction, contacts were still wary that credit tightening and slowing construction might slow activity in their industry," the report said.

Some reported cautious optimism because there was little evidence of a spillover from housing into other sectors at this time.

The debt crisis, which gained force in early August, was having a dampening impact on growth, the survey found. Banks, whose balance sheets are under pressure from their investment with derivatives based on subprime mortgages and asset-backed commercial paper, have responded by tightening credit standards, including for consumers and all types of real estate.

Home sales continued to fall.

"In some instances, buyers could no longer secure financing or were unable to sell their current homes," the survey said.

Retail sales were weaker and the store owners were worried about the outlook.

"There appeared to be a high level of uncertainty about the outlook for retail sales," and shops in some regions were reducing inventory, the survey said.

"Reports suggested developers are becoming more cautious - in some cases shelving or canceling projects," the survey said.

Job growth eased in some regions, the report said. Competitive pressures are keeping a lid on prices, although prices for some inputs are rising.