WASHINGTON – The already ailing U.S. economy has been battered by weak retail sales, canceled manufacturing orders and rising layoffs since the terrorist attacks, the Federal Reserve said Wednesday in its Beige Book.
The Beige Book, the Fed's new survey of business conditions, found that no area of the nation had been spared from the economic jolt caused by the Sept. 11 attacks.
"The softness in consumer spending, manufacturing and construction activity is affecting the labor market, where layoffs and plant closings have been reported in many industries from financial services on the East Coast to media and advertising on the West Coast to auto parts in the central states," the Fed said.
The report, compiled from information gathered by the central bank's 12 regional banks, will be used by the Fed when it meets Nov. 6 to decide what to do about interest rates.
Most economists say the terrorist attacks have pushed the country into a recession and are predicting the central bank, which has already pushed the interest rates it controls to their lowest levels in nearly four decades, will cut rates for a 10th time at the November meeting.
The Fed survey depicted an economy that came to a virtual standstill in the days immediately following Sept. 11 as air travel was temporarily suspended and Americans stayed home to watch television news reports.
In fact, the survey said that in the week following the attacks, spending dropped sharply for all items "except those that were likely purchased in preparation for possible additional attacks."
The Fed found increased spending for groceries, security devices and bottled water. Purchases of insurance also rose.
Since the initial shock, consumers have returned to the stores but spending was reported to be below the level of early September, causing many retailers to lower their expectations for upcoming holiday sales.
The Fed survey found that the temporary suspension of all commercial flights had both short- and longer-term impacts.
The delivery of fresh vegetables from the West Coast to the East Coast was disrupted and manufacturers reported trouble getting parts from their suppliers. However, the Fed said these disruptions proved temporary as air cargo was rerouted to trucks.
All Fed districts except Boston and Kansas City reported sharp declines in hotel, airline and tourism industries although some canceled conventions have now been rescheduled.
In the longer term, the Fed noted large layoffs in the aircraft and aircraft parts industries as orders for new planes have been cut sharply and widespread layoffs across many industries were reported.
"The continued weakness in manufacturing has contributed to pessimism about when orders will improve," the survey said. "Many districts do not expect a turnaround until 2002."
Many economists project that economic output, which grew by a barely discernible 0.3 percent in the April-June quarter, actually contracted in the July-September quarter and will fall even more sharply in the current quarter. The traditional definition of a recession is two consecutive quarters of falling gross domestic product.
However, economists are forecasting a sharp rebound in early 2002, helped by massive amounts of government stimulus in the form of increased spending and new tax cuts and the lower interest rates provided by the Fed.
The Fed survey found that large manufacturing layoffs were reported its Boston, Dallas, Kansas City, Chicago, Philadelphia, San Francisco and St. Louis districts. It said that Dallas, Richmond and Philadelphia districts reported declines in employment in the retail sector while all parts of the country reported job losses at hotels, tourism and the airlines.