The U.S. central bank says
the U.S. economy continues to deteriorate, and the outlook for the months ahead
remains grim. Wednesday's Federal Reserve report followed another decline in
U.S. retail sales that helped push financial markets lower.
In its latest
snapshot of America's economic health, the U.S. central bank says overall
conditions continued to deteriorate in recent months in all regions of the
United States. The report says American consumers have reacted to a severe
recession by further cutting back spending, prompting dismal retail sales
numbers and forcing businesses to cut back on production.
Reserve has slashed U.S. interest rates to record-low levels, and there is no
indication that it intends to tighten monetary policy anytime soon.
Fed report came hours after the U.S. Commerce Department said retail sales fell
for a record sixth consecutive month in December, plummeting two-point-seven
percent - more than double what many economists had expected.
sales have been negative for month after month after month. It is reflective of
how difficult the retail environment is and how much consumers have scaled back
their spending. I mean, this was just a terrible number," says retail industry
analyst Ken Perkins.
Responding to weak demand, businesses cut their
product inventories by point-seven percent in November, the largest decline in
U.S. consumer spending accounts for more than half of the
country's economic activity, and the protracted slump in retail sales is seen as
yet another strong indicator of economic weakness. If 2008 was the year that saw
the obliteration of America's biggest names in the financial services industry,
2009 could be the year of failed U.S. retailers.
"We are going to be
seeing a rash of store closings and retail bankruptcies here over the next few
months," says economist Robert Dye of PNC Financial Services.
one of America's best known retail stores, Macy's, announced poor sales were
forcing it to close a number of its outlets around the country.
pain extends far beyond the United States. New rounds of job cuts are being
announced almost daily in many countries, including Britain, where banks,
carmakers, and retailers announced a combined total of nearly 3,000 workers
eliminated from payrolls Wednesday.
The drumbeat of negative economic
news is taking a toll on oil prices, which slid under $36 a barrel on the New
York Mercantile Exchange. Poor economic indicators are also punishing financial
"Investors are still very nervous, very jumpy, and, as we can
see, it does not take much to knock the market down sharply," says Al Goldman,
Chief Market Strategist at Wachovia Securities.
Wall Street's Dow Jones
Industrial Average was sharply lower Wednesday. Shares in London, Paris, and
Frankfurt all finished the day down more than four and a half percent. Markets
in Tokyo and Hong Kong both recorded slight gains.