The U.S. economy expanded at a slower pace during the late fall as tighter credit, rising defaults in mortgages and higher fuel costs compelled consumers to keep their wallets closed.
The Federal Reserve said Wednesday in its Beige Book survey, a snapshot of national economic activity, that strains from a severe housing slump are making individuals and businesses more cautious about spending.
"Reports on retail spending were downbeat in general," the Fed survey said. "Most retailers said that they were expecting a slow holiday season, with only small gains in sales volumes compared with last year."
Spending by consumers and businesses is the lifeblood of the country's economic activity. Economists worry that consumers and businesses will cut back on spending and investing, further stunting economic growth.
The results for the survey — from October to mid-November — are expected to be a priority when Federal Reserve Chairman Ben Bernanke and the board meet Dec. 11 to decide their next move on interest rates. Investors and some economists anticipate another reduction in key borrowing rates.
Investors optimistic about a cut sent up shares traded on the New York Stock Exchange more than 300 points by late afternoon.
If the Fed does cut interest rates, it will be the board's third time this year in hopes of aiding ailing credit markets and clamping the flow of losses in U.S. and world markets.
Depressed residential real estate has left a glut of homes on the market, putting pressure on prices as well as construction.
Of the 12 Fed regions surveyed, seven reported a slower pace of economic activity, while the remainder generally pointed to "modest expansion or mixed conditions," the Fed said.
From NPR reports and The Associated Press