WASHINGTON (AP) -- The country has sunk deeper into an economic rut, the Federal Reserve reported Wednesday, reflecting mounting damage from the financial and credit crises.

The Fed's new snapshot of business conditions around the nation showed economic activity weakened across all of the Fed's 12 regional districts. Consumer spending -- which accounts for more than two-thirds of economic activity -- slumped in most Fed regions. Manufacturing also slowed in most areas.

Some businesses had become more pessimistic about the economic outlook, the Fed said.

The survey was released shortly after Fed Chairman Ben Bernanke, in a speech in New York, warned that it would take time for the country's economic health to mend even if badly needed confidence in the U.S. financial system returns and roiled markets stabilize.

In an unprecedented action last week, the Fed and other major central banks sliced interest rates to prevent the financial crisis from plunging the U.S. -- and the global economy -- into a long and painful recession.

Many economists believe the Fed might lower its key rate -- now at 1.50 percent -- again later this month at its regularly scheduled meeting.

Consumers are pulling back, raising the odds the economy will contract later this year and early next year. Some think the economy may have jolted into reverse in the recently ended third quarter. One classic

WASHINGTON (AP) -- Retail sales fell off a cliff in September, plunging by the largest amount in three years as worried consumers shunned the malls and auto showrooms in the midst of the country's financial meltdown.

The Commerce Department reported Wednesday retail sales decreased 1.2 percent last month, nearly double the 0.7 percent drop that had been expected. It was the biggest decline since retail sales fell by 1.4 percent in August 2005.

The bigger-than-expected decline significantly increased the risks of a recession because consumer spending is two-thirds of total economic activity.

The weakness was led by a 3.8 percent drop in auto sales. Sales dropped below 1 million units as consumers struggled to find financing.

Retail sales have now fallen for three consecutive months, the first time that has occurred on government records that go back to 1992. Economists had expected sales to be down in September as a flood of bad news about the financial system and rising unemployment increased consumers' worries.

Many analysts believe the overall economy, as measured by the gross domestic product, is slipping into a recession, triggered by a steep slump in housing and the severe credit crisis.

Even excluding auto sales, retail sales showed widespread weakness, falling by 0.6 percent or double the decline outside of autos that had been expected.

"The consumer shut up shop even before the markets got crushed and that is not good news for the