In October and the first half of November, economic growth has slowed in seven of the USA''s 12 regions. That''s what the US Federal Reserve has said in its regional business survey, known as the ''beige book'' owing to the colour of its cover.

Whatever the colour of the report, the hue of the Fed''s outlook on the US economy is uniformly gloomy. It says retailers were ''''slightly pessimistic'''' about year-end holiday sales, a glut of houses for sale pushed home prices down, while tighter credit took some would-be buyers out of the market.

The November beige book was prepared by the San Francisco Fed on the basis of information gathered till 16 November, before the Fed''''s 11 December policy meeting. The US central bank''s report was released on Wednesday 28 November.

Credit crunch compounds slump
It shows the prolonged housing slump and credit market turmoil have been casting a pall on the economy. Most US analysts confirm that the tone of the overall report is indicative of a gloomy economic outlook.

The economy grew at an annual rate of 3.9 per cent in the July to September 2007 period, but almost everyone now expects it to grow much more slowly in the last three months of the year and in early 2008.

The Beige Book has said news about retail spending was ''''downbeat'''' in general. But some districts have shown a solid growth in sales for consumer electronics and luxury goods. Meanwhile, higher energy costs were creating an upward pressure on prices.

It doesn''t mention the dreaded ''S'' word anywhere, but indications are that the worst-case-scenario prospects of ''stagflation'' - that vicious combination of an economy in recession compounded by sharply rising prices - is one of the deep, inner, unspoken fears gnawing at the heart of the Fed''s officials.

Food, fuel prices peak
Elevated oil prices pushed up transportation costs and manufactured items that use petroleum-related materials, the report said. Food prices ''''continued their upward march'''', and the prices of imported goods rose because the dollar''''s value fell. While some producers responded to inflation by increasing retail sales prices, others were forced to absorb price increases in their profit margins, the Fed said.

The Fed lowered its benchmark inter-bank lending rate by a cumulative three-quarters of a per cent to 4.5 per cent in its September and October meetings, to buffer the economy from the housing downturn and financial market disarray.

Officials say they believed those rate cuts would bring risks of slower growth and higher inflation roughly into balance. But since then, credit market conditions have deteriorated once more, as banks have hoarded cash as a contingency against credit-related losses.

Kohn proposes…
Fed vice chairman Donald Kohn hinted on Wednesday that given the elevated turbulence, the Fed was prepared to be ''''flexible'''' about further rate cuts as credit becomes scarce for households and businesses.

Kohn also said that the Fed had factored in some tightening of credit from this year''''s mortgage market losses into its policy decisions, but that recent money market liquidity problems could restrict credit more than previously thought.

Lending to businesses was slower in October and early November, but remained at high levels, the beige book said. Mortgage lending, however, ''''continued its downward slide'''', and mortgage delinquencies increased ''''significantly'''' in many areas of the country, the report said.

Following Wednesday''s report, the dollar slipped against the euro, reversing earlier gains. But it remained sharply higher versus the yen, buoyed by the steep gains in the US stock market, as investors went back into riskier trades.

Wall Street disposes!
The market interpreted Kohn''s remarks as a signal that there will be more rate cuts. That not all that much surprising, because the tone of the beige book is consistent with that kind of interpretation. Not surprisingly, the stock market went into top gear and the Dow Jones index shot through the roof.

The beige book also said that wage pressures were ''''unchanged'''', while pressures on prices of goods and services - excluding food and energy - ''''remained modest''''. Items linked with energy and agricultural products saw ''''significant'''' increases in costs, the Fed said.

Fed funds foretell future
Prices of federal funds futures presently factor in a 100 per cent probability that the Federal Open Market Committee will cut rates on 11 December. Traders anticipate a quarter-point reduction in the benchmark rate to 4.25 per cent. Odds of a half-point reduction are a relatively low 6 per cent.

''''Reports on non-financial services generally were consistent with expanding economic activity,'''' the beige book said. ''''Manufacturing activity was mixed across sub-sectors, but appeared to be largely stable.''''

A sea of red
But general indices are alarming. Sales of previously owned US homes fell 1.2 per cent in October to an annual rate of 4.97 million in October, the lowest in at least eight years. Orders for cars, planes and consumer durables dropped for a third month continuously, the longest slump in three-and-a-half years. The Fed says it doesn''''t expect ''''a significant pickup in homebuilding until well into next year''''.

The Beige Book''''s regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 US states. The anecdotes are designed to supplement the quantitative forecasts of the Board of Governors staff.