Fears grow for US economy

The Fed says the economy was slowing even before the attacks on 11 September

Fears for the US economy are growing, after the country's central bank revealed that there had been no signs whatsoever of an upturn before the terrorist attacks in New York and Washington.

The Beige Book, published monthly by the Federal Reserve, paints a gloomy picture, describing economic activity as "sluggish", warning that in several of its 12 districts nationwide "activity slowed down further".

Worse still, consumer spending across the country was "flat to down", according to the survey, conducted in the six weeks to 10 September - the day before passenger jets were crashed into the World Trade Center in New York and the Pentagon in Washington DC.

In more than half the Fed's districts, retailers said they foresaw "either flat sales or only moderate growth for the remainder of the year".

Consumer concern

Until now, consumer spending was the key factor underpinning the US economy.

Analysts warn that the US economy could be plunged into recession should consumer confidence collapse in the wake of the attacks on the World Trade Center and the Pentagon.

And the Beige Book has dissolved any hope that the $40bn in tax rebates issued by the Bush administration in August could have prompted consumers to return to the shops.

The rebates, the survey said, had "only a limited effect on spending in August".

Government hopes that federal income tax rebates could kick-start the US economy appear to have been left unfulfilled. The tax cuts had "only a limited effect on spending in August", the Fed said.

Manufacturing 'soft'

Manufacturing extended its poor run, the report said, with activity "remaining weak in nearly all regions.

"The softness appeared to be broad based," it said, with nearly half the 12 regions reporting "conditions had deteriorated further."

One of the few bright spots in the report was confirmation that residential real estate remained strong - even though the commercial sector remained soft.

The sector was "brisk, strong or steady in most reports," the Beige Book said, largely thanks to low mortgage rates.

And in two districts the decline of the hard-hit hi-tech sector could be bottoming out, the Fed said. Elsewhere, though, the sector "generally softened further".