Fed's Beige Book Portrays Weakening Economy

Washington, DC, Jan. 15, 2009—The U.S. economy continued to weaken into the  the new year, as labor markets and housing markets weakened, and manufacturing slowed, the Federal Reserve said in its Beige Book report on Wednesday.

The report, gathered from respondents in the 12 Fed districts through January 5 suggests the Fed may need to implement further measures to thaw frozen credit markets and restore lending.

"The economy is terrible and the financial market is still a mess," said David Wyss, chief economist for Standard & Poor's in New York.

Retail sales were generally weak during the holiday season, despite deep discounting in most areas, the Fed said.

The Fed said lending activity declined or stayed weak in many areas, and credit conditions were tight or getting tighter.

Commercial real estate markets deteriorated, and reports about commercial construction were downbeat, the report said.

Against that backdrop, various Fed districts reported more workers losing jobs, hiring freezes, and reduced hours for some employees. The New York district reported that "substantial" job reductions have yet to show up in payrolls data.