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Fed says economy sinking deeper

Fed Chairman Bernanke says central bank prepared to lower key interest rate.

WASHINGTON — The country’s economic picture has darkened further as Americans hunkered down heading into the holidays, forcing retailers to ring up fewer sales and factories to cut back on production.

The Federal Reserve’s new snapshot of business conditions nationwide, released Wednesday, suggested the economy was sinking deeper into recession.

“Economic activity weakened across all Federal Reserve districts,” the report concluded.

The Fed didn’t use the word “recession,” but just two days earlier the National Bureau of Economic Research declared what many Americans already knew in their bones: that the country had been suffering through one since last December.

To cushion the fallout, Federal Reserve Chairman Ben Bernanke said Monday that the central bank is prepared to lower its key interest rate and to explore other ways to revive economic activity. Many economists predict the Fed will cut its rate — now near a historic low of 1 percent — at its last scheduled meeting this year on Dec. 16.

With jobs vanishing, shoppers cut back, causing retail sales to be “weak” or “down” in most of the Fed’s 12 regions.

“Retailers were preparing for a relatively slow holiday sales season,” the Fed report said. New York retailers said the holiday sales season is likely to feature more discounted prices on merchandise than last year. Some retailers in the Fed regions of Boston, Philadelphia, Cleveland and Dallas planned to cut capital spending projects for 2009.

Consumer spending — which includes retail sales — is a major shaper of national economic activity. Job cuts, tanking investment portfolios and sinking home values have made American consumers, however, wary of spending.

ShopperTrak RCT Corp., a research company that tracks total retail sales for more than 50,000 outlets, released more data Wednesday showing that the better-than-expected sales boost on Friday, the traditional opening for the holiday shopping season at stores, fizzled quickly during the rest of the weekend — resulting in a mixed start to the season.

The economy jolted into reverse in the summer as consumers slashed their spending by the most in 28 years.

Many believe the economy will continue to shrink through the rest of this year and into the first quarter of next year. At 12 months and counting, the current recession is longer than the 10-month average length of recessions since World War II. The record for the longest recession in the postwar period is 16 months, which was reached in the 1973-75 and 1981-82 downturns.

Besides retail sales, auto sales were down sharply in most Fed regions. Car buyers in many areas had difficulty obtaining financing, a direct result of the credit crisis, the report said.

The chiefs of Chrysler LLC, General Motors Corp. and Ford Motor Co. are preparing to return to Capitol Hill on Thursday and Friday to again make their case for as much as $34 billion in emergency aid.

At factories, “manufacturing activity declined noticeably” since the Fed’s last report in mid-October. Similarly, activity in the services sector contracted in most Fed regions.

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