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Washington
14 January 2009
The U.S. central bank says the U.S. economy continues to deteriorate, and the outlook for the months ahead remains grim. Wednesday's Federal Reserve report followed another decline in U.S. retail sales that helped push financial markets lower.
In its latest snapshot of America's economic health, the U.S. central bank says overall conditions continued to deteriorate in recent months in all regions of the United States. The report says American consumers have reacted to a severe recession by further cutting back spending, prompting dismal retail sales numbers and forcing businesses to cut back on production.
The Federal Reserve has slashed U.S. interest rates to record-low levels, and there is no indication that it intends to tighten monetary policy anytime soon.
The Fed report came hours after the U.S. Commerce Department said retail sales fell for a record sixth consecutive month in December, plummeting two-point-seven percent - more than double what many economists had expected.
"Same-store sales have been negative for month after month after month. It is reflective of how difficult the retail environment is and how much consumers have scaled back their spending. I mean, this was just a terrible number," says retail industry analyst Ken Perkins.
Responding to weak demand, businesses cut their product inventories by point-seven percent in November, the largest decline in seven years.
U.S. consumer spending accounts for more than half of the country's economic activity, and the protracted slump in retail sales is seen as yet another strong indicator of economic weakness. If 2008 was the year that saw the obliteration of America's biggest names in the financial services industry, 2009 could be the year of failed U.S. retailers.
"We are going to be seeing a rash of store closings and retail bankruptcies here over the next few months," says economist Robert Dye of PNC Financial Services.
Last week, one of America's best known retail stores, Macy's, announced poor sales were forcing it to close a number of its outlets around the country.
Economic pain extends far beyond the United States. New rounds of job cuts are being announced almost daily in many countries, including Britain, where banks, carmakers, and retailers announced a combined total of nearly 3,000 workers eliminated from payrolls Wednesday.
The drumbeat of negative economic news is taking a toll on oil prices, which slid under $36 a barrel on the New York Mercantile Exchange. Poor economic indicators are also punishing financial markets.
"Investors are still very nervous, very jumpy, and, as we can see, it does not take much to knock the market down sharply," says Al Goldman, Chief Market Strategist at Wachovia Securities.
Wall Street's Dow Jones Industrial Average was sharply lower Wednesday. Shares in London, Paris, and Frankfurt all finished the day down more than four and a half percent. Markets in Tokyo and Hong Kong both recorded slight gains.
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