The Federal Reserve said economic growth slowed since August in five of 12 regions, lending weight to the case for further interest-rate cuts to cushion the economy from housing and financial-market turmoil.
Consumer spending, manufacturing and service industries weakened as the “pace of growth decelerated” across the U.S., the central bank said in its regional business survey, known as the Beige Book for the color of its cover. Labor shortages may also be restraining the expansion, the central bank said.
The observations may be at odds with some reserve-bank presidents who have expressed skepticism about the need for more reductions in the benchmark rate after last month’s surprise half-point cut. Two days ago, chairman Ben Bernanke said it’s still too early to judge how much the housing recession will affect consumer and business spending.
“It is a downbeat report,” said David Jones, a former Fed economist who is now head of DMJ Advisors LLC in Denver. “The simple fact is this – we had a major credit crisis. It caused everyone to see a higher cost of credit, and that is hurting the economy generally.”
The Beige Book is based on information collected through Oct. 5.
Policymakers next meet in Washington on Oct. 30-31.
