The economic slowdown has begun, according to the Federal Reserve's latest report on conditions across the country released Wednesday.

Housing experts told Fed staffers that no turnaround is on the horizon until into 2008 at the earliest. The US economy has weakened evidently by the continuing depressed housing market, downbeat retailers, and poor showing of real estate lending, according to the report, known informally as the “Beige Book” named after the color of its cover.

The economy continued to grow, but at a slower pace, according to the report. The report is a pre-meeting compilation of anecdotal reports from the 12 Fed Bank districts. Seven of the twelve Federal Reserve Districts showed reduced growth while the other five districts reported modest and/or mixed.

It is designed to give Fed officials a flavor of economic conditions on the ground as they prepare for their next interest-rate setting meeting on Dec. 11.

Conditions in the real estate sector continued to get worse, with only a few signs of steadiness or recovery. The glut of homes for sale inventory continues to press house prices downward and slow construction activity down further, the report said.

Economists believe the Fed will cut rates for the third straight meeting as a result of deteriorating conditions in credit markets. The financial market turmoil is impacting the market for credit. Business loans are down and standards for consumer loans are up.

Two of the few bright spots were manufacturing and tourism, which benefit from the weaker dollar.

The report found soft retail sales and pessimism about the holiday season from retailers, who were also concerned that goods were beginning to pile up on store shelves.

The report said that prices for products and services tied to food and energy were rising significantly, although inflation remained modest overall.

The weaker dollar was resulting in price increases for imported goods.

Some labor markets eased and this was cooling off upward wage pressure, the report found.