The U.S. economy has weakened since the beginning of this year and is struggling on several fronts, with housing, manufacturing, and retail activity losing momentum, the Federal Reserve (Fed) said in a report. Consumers have turned more cautious due to the housing slump and severe tightening of credit, and manufacturers and other businesses are dealing with soaring prices for energy and other raw materials, according to the Fed survey of national economic conditions. “Economic growth has slowed since the beginning of the year,” the Fed said in its Beige Book report, named for the color of its cover. Two-thirds of the Fed's 12 regions “cited softening or weakening in the pace of business activity, while the others referred to subdued, slow, or modest growth,” the survey said. The survey noted declines in sales of expensive manufactured items, and said troubles in housing-the leading factor in the economic slowdown-are not over. “Residential real-estate markets were generally weak over the last couple of months,” it said. In some areas, the Fed cited “drops in home sales of more than 20 percent” over the past year. In a sign of trouble facing the financial sector, the survey said most districts cited “tight or tightening credit standards and stable or weaker loan demand.” The central bank also cited “upward pressure on prices from rising materials and energy prices,” a sign of inflation that is complicating the Fed's task of strengthening growth. Economic growth slowed to a near halt in the fourth quarter of 2007, advancing at a pace of only 0.6 percent. Many economists believe growth in the current January-to-March quarter will be worse, and some believe the economy has already started to shrink. In an effort to spur growth, the Fed has been reducing a key interest rate since September, becoming more aggressive in its rate cuts in January. Fed Chairman Ben Bernanke suggested last week that the central bank is ready to lower rates again at its next meeting on March 18. Some economists worry that the country could be headed for stagflation-a dangerous mix of stagnant economic activity and persistent inflation. The Fed generally fights weak economic growth by reducing interest rates and tries to limit inflation by raising rates. Therefore, the central bank has a difficult time using interest-rate policy to battle both conditions.
