Ben Bernanke, the chairman of the US Federal Reserve, admitted yesterday that patching up credit markets would not result in an immediate boost to the American economy as new evidence emerged that suggests a sharp slowdown is under way.

In a speech delivered to the Economic Club of New York, the central banker said: “Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away.”

While the Federal Reserve has only just cut interest rates by half a percentage point to 1.5 per cent, yesterday’s producer price statistics showing an easing of inflationary pressures may go some way to convince the central bank to cut again.

The producer price index - a gauge of prices received by farms, factories and refineries - dropped by 0.4 per cent last month as the recent decline in the price of oil soothed the pace of inflation.

At the same time, economists were shocked by other data published yesterday that showed the American shopper has sharply cut spending. Retail sales in September sank at almost twice the rate expected on Wall Street, with the Commerce Department showing that sales had fallen 1.2 per cent last month to $375.5 billion (£216.6 billion), far greater than the forecast 0.7 per cent decline.

Wall Street economists described the statistics as hideous as sales sank across various sectors, with clothing and furniture both down 2.3 per cent, electronics off 1.5 per cent and car sales down 4.2 per cent.

Stripping out food, fuel and car sales - a measure known as core retail sales - Americans bought 0.8 per cent less in September, totting up an annualised decline of 5.7 per cent. Such a slump marks the steepest fall since the data began in 1992.

Retail sales are a critical lever for the American economy, with consumer demand accounting for two thirds of US growth.

The latest data chimes with other economic evidence that America is already in the grips of a recession and may remain so for at least a year to 18 months. Two-year recessions are rare.

Ian Shepherdson, the chief US economist at High Frequency Economics, said: “Another sharp drop in consumption is assured for September and there can be no doubt now that the economy is in recession. It will be there a while.”

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