The U.S. economy deteriorated further in the early spring as consumers felt the strains of the housing and credit crises and a weaker employment climate, the Federal Reserve (Fed) said in a report Wednesday. U.S. manufacturers and other businesses were hit by soaring prices for energy and other raw materials, but their ability to increase retail prices was mixed, with some companies restrained by competitive pressures, the Fed said in its beige book report, named for the color of its cover. The report underscored the challenges facing central bank policymakers as they work to keep the economy from falling into a deep recession, while at the same time avoiding a jump in inflation. U.S. consumers have become more cautious, the report warned. Consumer spending accounts for two-thirds of U.S. economic activity. “Economic conditions have weakened,” the central bank wrote. “Consumer spending was characterized as softening across most of the country, with some districts reporting year-over-year declines in retail and/or auto sales,” the report said. Merchants reported that sales were “sluggish or declining” in 10 of the Fed's 12 regions, the report said. High energy costs are hurting businesses' profits and forcing consumers to reduce spending on other items. The effect is to lower economic growth while also adding to inflationary pressures. Oil prices surpassed $115 a barrel for the first time Wednesday. Gasoline prices have soared as well, moving toward $4 a gallon, the Fed report said. Businesses also must deal with high commodity prices. “Most manufacturers have or are planning to increase prices” in response to rising costs for raw materials, the report said. The U.S. housing market remained in a severe slump, the Fed said. Most regions saw a “continued slide” in demand for goods related to housing construction, and home building remained weak throughout the country, though “there were few signs of any quickening in the pace of deterioration,” the report said. The Fed report noted declines or downward pressure on home prices in several regions, including the once-booming areas of New York City and San Francisco, California.
