US slowdown bites into heartlands

Economic conditions in most parts of America have continued to weaken, the US central bank has said in a much watched report.

While some of the areas of the country have shown signs of economic recovery, most saw the slowdown deepen in October and early November, the Federal Reserve said in its latest monthly "beige book" report.

In manufacturing, activity "weakened further in nearly all regions", with more than two thirds of districts reporting shrinking order books.

And in the service sector, consumer spending remained below levels before the 11 September terror attacks, if showing some revival.

Bright spots

The report comes two days after an official panel of economists confirmed that the US had entered recession.

And the Fed said that, overall, US economic activity was "soft" into mid-November.

But bright spots included the motor sector, which saw sales rise to "exceptional levels" over the period.

Hotel occupancy rates, which fell below 50% in late September, rebounded to 75%.

Analysts also took heart from data showing that upward pressure on prices remained "subdued in all districts", indicating that inflation fears would not stand in the way of further cuts in interest rates.

Wednesday's report was seen as raising the chances of further reductions in rates, already at their lowest level for 40 years.

Pre-Christmas discounts

The report also raised few hopes of bumper Christmas period for retailers, with many stores already prepared for weak trade.

"Store managers had already begun discounting prices in some areas to counteract weak customer traffic," the Fed said.

Car dealers also feared that the current boom might end as sales incentives periods ended.

The beige book, so called because of the colour of its cover, is compiled from information supplied by the Federal Reserve's 12 regional banks.