Underscoring the widespread economic downturn and playing into recession arguments the Federal Reserve reported today in its Beige Book “economic activity weakened in September across all twelve Federal Reserve Districts.” Several districts, the Beige Book said, “also noted that their contacts had become more pessimistic about the economic outlook.” Credit concerns dotted the report.

The Beige Book, formally “Summary of Commentary on Current Economic Conditions,” is a compilation of anecdotal reports from each of the 12 districts prepared about two weeks in advance of a Federal Open Market Committee meeting. The FOMC’s next scheduled meeting is October 28-29. 

Historically, negative Beige Books correlate with a cut in the target Fed Funds rate by the FOMC, but the FOMC instituted an emergency cut in the Fed Funds rate to 1.50% last week.

The report issued today was based on information collected through October 6.

The economic weaknesses reflected in the report were widespread both by sector as well as geography:

• Consumer spending, according to the report, “decreased in most Districts, with declines reported in retailing, auto sales and tourism.”
• Nearly all Districts commenting on nonfinancial service industries noted reduced activity.
• Manufacturing slowed in most Districts, the report said.
• Residential real estate markets remained weak, and commercial real estate activity slowed in many Districts.
• Credit conditions were described as “tight” across all twelve Districts.

About the only positive in the report was that “inflationary pressures moderated a bit in September” although several Districts “noted continuing pass-through of earlier price increases for metals, food and energy.”

The report said the labor market weakened in most Districts resulting in “limited” wage pressures, typically an inflation driver.

Consumer spending was softer in nearly all Districts. Retail sales were reported weaker or declining in Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Kansas City; Dallas and San Francisco. Boston and New York indicated sales were mixed. Discretionary spending and spending on big ticket items was lower in most Districts though spending was reported to have increased at discount stores “as consumers became more price conscious and shifted purchases toward less-expensive brands.”

Reflecting the clogged credit markets, the report said “credit conditions tightened in all the Districts that reported on them.”  Bank lending, according to the report was “either stable or lower for both consumers and businesses” and “credit standards were tightened, particularly for commercial and residential real estate loans, in several Districts.” Several districts, the reports said also indicated lenders “had become more highly cautious and more conservative.”

Some Districts, the report noted, also said mentioned customers taking steps to ensure existing deposits are covered by insurance and had withdrawn deposits after reports of bank closings during September.

The Beige Book said capital spending was weak in several districts which said business investment decisions “were being influenced by economic uncertainty.” The Philadelphia District indicated concerns over restrictions in access to credit were limiting future capital expenditures for some manufacturers.

Manufacturing activity was reported lower in most Districts with “heightened concern about the economic outlook.” Several Districts, the report said “noted that credit conditions were contributing to a high level of uncertainty.”

With housing markets remaining in flux, residential real estate and construction activity

“weakened or remained low in all Districts.” Several Districts cited “continuing downward price pressures and an increasing supply of homes for sale due to rising foreclosures.” The inventory of unsold homes was reported to have declined though in parts of the  Boston and Atlanta Districts as well as in Philadelphia and Cleveland.

Most Districts, the report said,  “cost pressures on prices had eased, although a number of Districts noted that the costs of energy, raw materials, food, and transportation remain elevated and margins were tight.”