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Fed: Economy weakened as shoppers turn cautious

WASHINGTON - The economy has weakened since the start of this year as shoppers turned even more cautious given the severe housing slump and painful credit crunch.

Manufacturers and other businesses, meanwhile, had to cope with skyrocketing prices for energy and other raw materials. The businesses' ability to pass along higher prices to their customers was mixed, according to the Federal Reserve's new snapshot of nationwide economic conditions released Wednesday.

Many economists fear that the country is teetering on the edge of a recession or is in one already.

'Economic growth has slowed since the beginning of the year,' the Fed reported. Two-thirds of the Fed's 12 regions 'cited softening or weakening in the pace of business activity, while the others referred to subdued, slow or modest growth,' the Fed said.

The report suggested that persisting problems in the housing market and harder-to-get credit are affecting the behavior of individuals and businesses alike - making them think twice about spending and investing.

The nation's retail sector is feeling the strain.

'Reports on retail spending were generally downbeat,' the Fed said.

The Fed said that retailers in a majority of regions described sales as 'below plan, downbeat, weak or having softened.' Clothing sales, for instance, were reported as soft in the regions of New York, Philadelphia and Richmond, Va. Several regions noted declines in sales of 'big ticket' goods and home-related items, the Fed said. Auto sales nationwide were characterized as slow or sluggish, the Fed said.

Spending by consumers accounts for a big chunk of overall economic activity and thus plays a major role in determining whether the economy will survive the housing and credit crises or fall victim to those problems.

Economic growth slowed to a near halt in the final three months of this year, advancing at a pace of just 0.6 percent. Many economists believe growth in the current January-to-March quarter will be worse - a pace of around 0.4 percent. Some analysts, however, believe the economy is actually shrinking now.