Economic activity fell in two regions on the US East Coast in August, according to the Federal Reserve’s business contacts, in the latest evidence of a stall in the US economy.

The Philadelphia district said that activity “has been more mixed and somewhat weaker overall” and Richmond said that economic activity had “slowed”. Most of the other 10 districts said that “modest” or “subdued” growth continued but several noted a slowdown.

Coming after news that the US economy added no net jobs in August, the reports in the latest ‘Beige Book’ confirm that growth has slowed almost to a standstill. But the regional pattern suggests that sharp falls in some local measures – such as the Philadelphia Fed manufacturing index – may be overstating the slowdown in the national economy as a whole.

The Beige Book is based on anecdotal information gathered from local businesses by the 12 regional Fed banks around the US. Fed officials use the information to colour their understanding of more formal data but few rely on it as their main guide to the state of the economy.

The data came as two regional Fed presidents gave speeches in support of further monetary easing and a former Fed governor proposed a new kind of inflation target for the central bank.

“Right now, though, the real threat is an economy that is at risk of stalling and the prospect of many years of very high unemployment, with potentially long-run negative consequences for our economy,” said John Williams, president of the San Francisco Fed, and one of the newest members of the rate-setting Federal Open Market Committee.

“There are a number of potential steps the Fed could take to ease financial conditions further and move us closer to our mandated goals of maximum employment and price stability,” said Mr Williams. Charles Evans, president of the Chicago Fed, argued strongly for more easing in a speech in London.

Meanwhile, Larry Meyer, a former governor of the central bank and now a leading analyst of the Fed at research firm Macroeconomic Advisers, suggested that the Fed should set an explicit goal for overall inflation of 2 per cent, but allow core inflation, which excludes volatile food and energy prices, to move within a short-term range of 1.5 to 2.5 per cent.

That set up would give the Fed more flexibility to let short-term inflation rise as it stimulated the economy in pursuit of growth, while helping to keep long-term expectations of inflation fixed at 2 per cent. However, many Fed officials adamantly oppose any move that would allow higher inflation.

A general theme of the Beige Book was that worrying recent news on the economy has caused businesses to scale back their expansion plans. “Recent stock market volatility and increased economic uncertainty had led many contacts to downgrade or become more cautious about their near-term outlooks,” the report said.

The St Louis, Minneapolis, Kansas City, Dallas and San Francisco regional banks reported “modest or slight expansion” while other eastern districts generally reported slower growth.

“Overall, the report provided some confirmation that the economy continues to struggle for direction, following the shockingly weak growth performance in the first half of the year,” noted Millan Mulraine of TD Securities in New York.

The August report suggested that the auto industry is starting to bounce back from supply chain disruption caused by the March tsunami in Japan. Most districts commenting on car sales “noted increases in activity” although there were “lingering supply disruptions for some Japanese nameplates”.

The Chicago district said that “auto production levelled off in August after a strong July” while Dallas said that “supply issues from Japanese manufacturers should be resolved by the end of September”. If car sales are already recovering, however, it makes some of the other weak August data look even worse.

There was also evidence that extreme weather conditions are hitting output in agriculture, with “stressed crops and livestock” in Midwestern districts, “herd liquidations” in Kansas City and Dallas, and “extensive damage to field crops not yet harvested in North Carolina” from Hurricane Irene.

Real estate and bank lending – two areas often cited as the biggest drags holding the economy back – remained weak across the US.

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