WASHINGTON -- A fresh set of government statistical report issued yesterday shows the U.S. economy is at a virtual standstill with only a hint of inflation, fueling bond market expectations that the Federal Reserve will have to ease monetary policy once again.

"This economy is flat. It's not moving right now," said C. Douglas Lee, chief economist for County NatWest USA. "We're not seeing any inflation, and all the data are consistent with a pretty stagnant picture," he said.

Even though the Federal Reserve has acted frequently to slash short-term rates and brought the discount rate down to 4.5%, Mr. Lee said there is a good chance Fed officials will trim the federal funds rate again before the end of the year from the current rate of 4.75%.

Economists said they are convinced the summer recovery hailed by the Bush administration and Federal Reserve Board Chairman Alan Greenspan has been swept away like a pile of autumn leaves. In its place is a conviction that the possibility of a double-dip recession -- generally dismissed only a few months ago -- is rising.

"The recession's second dip has started," said the U.S. Chamber of Commerce in a press release. "The recovery, already short and weak, has deteriorated further than Washington's policy makers are willing to admit."

The gathering sense of foreboding for the economy was fueled by a report yesterday from the Commerce Department that retail sales in October slipped 0.1%. Sales at department stores fell for the third month in a row, providing more evidence that consumers have been retrenching since July.

Separately, the Labor Department reported consumer prices in October edged up only 0.1% -- the smallest gain in seven months and a welcome relief to the bond market after Tuesday's troubling report showing the producer price index jumped 0.7%. The consumer price index is a broader measure of inflation than the PPI because it reflects retail activity in a range of goods and services.

The small rise in the October CPI report followed stronger gains of 0.4% in August and September. Excluding food and energy, consumer prices were up a modest 0.1%.

The Labor Department also said initial claims for unemployment insurance jumped 33,000 to 454,000 in the latest reporting period. Claims have been holding consistently above 400,000 for weeks after falling from above 500,000 at the beginning of the year.

"The outlook on the economy over the next three to six months is for considerable weakness," said Donald Fine, chief market analyst for Chase Securities Inc. "The economy is extremely soft and inflation is not a threat."

Mr. Fine estimates real gross national product in the fourth quarter will be up at an annual rate of only 1% -- a considerable drop from the tepid gain of 2.4% reported for the third quarter by the Commerce Department in its preliminary estimate issued last month.

The Federal Reserve has slashed short-term interest rates repeatedly, citing a sluggish economy as well as slow growth in money and credit. At the beginning of the year, the rate on federal funds was at 7%, which means that since then short-term rates have fallen 225 basis points.

But long-term rate, which are not under the direct influence of the Fed, have remained stubbornly high, and consumer loan rates have hardly moved at all. Even with the prime lending rate at 7.5%, rates on most credit cards remain in the lofty double-digit range above 15%.

President Bush appealed this week for banks to lower their rates on credit cards, and the Senate approved a cap on credit card rates as part of legislation to modify regulation of the banking industry.

Still, analysts are wondering whether lower rates will do much to help a hobbling economy beset by low consumer confidence, stubborn unemployment, and other ills. Mr. Fine said, "we have a lousy economy and monetary policy is the only game in town, but it's only marginally effective."

Gary Shilling, president of Shilling & Co. in Springfield, N.J., said the economy is suffering a deep financial crisis based on the big buildup of debt by consumers, business, and government dating back to the 1970s. As a result, he said, businesses and individuals are holding off on spending and investment.

The problem is compounded by the downturn in real estate markets that is shrinking the assets of property owners and making banks and other financial institutions reluctant to lend, said Mr. Shilling. "We call this the balance sheet recession," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.