The reaction of the US economy to Wednesday's cut in short-term interest rates could be summed up in the words of Oliver Twist: "Please Sir, can I have some more?" Mr Alan Greenspan, a Scrooge when it came to doling out rate cuts in the past, is likely to listen. The news yesterday that US manufacturing activity weakened further in January suggested strongly that the Federal Reserve chairman may not be finished cutting interest rates aggressively to keep the US economy out of recession. Indeed, the economy may already be in recession, according to the latest in a series of alarming indicators. A key industry group reported yesterday that manufacturing activity in January slumped to a level that suggested the overall US economy failed to grow for the first time in nearly 10 years. For six months in succession the manufacturing sector, overburdened with inventories amassed at the end of the boom, has contracted, according to the National Association of Purchasing Management. Manufacturing activity, which accounts for one-fifth of the world's largest economy, fell to 41.2, its lowest level since 1991. A figure above 50 means growth in the sector; below 50 means contraction. A figure below 42.7 generally indicates a contraction in the overall economy, said Mr Norbert J. Ore, who oversees the monthly survey. "It corresponds to a minus 0.6 per cent annual decrease in real gross domestic product," he said, though he predicted that "this technology-driven, global economy is more resilient and should be able to rebound more quickly than it did in 1991". "There are just no two ways about it. We are clearly in recessionary territory," said Mr Doug Porter, senior economist for BMO Nesbitt Burns Securities of Chicago, in reaction to the manufacturing report. On Wednesday, the Federal Reserve cut interest rates by a half percentage point for the second time in less than a month. It said its main concern was the threat of the economy stalling and falling into a recession. With inflation contained, it said monetary action was urgently needed. Mr Greenspan has never before moved so quickly to stop a slide. What he delivered in one month - a full percentage point reduction - took him five months in quarter-point increments in 1990, when the country was entering its last recession.

It usually takes six months for a Fed cut to filter through to the economy. Much of the immediate impact of the January interest rate revision, which brought short-term interest rates down from 6.5 per cent to 5.5 per cent, is psychological, aimed at reviving optimism of a better finish to the year. Some results can already be seen. The stock market has been performing better since the first half percentage point cut on January 3rd. New loans are being taken out and homeowners are refinancing.

The Fed's latest action means a further drop in borrowing and credit card costs for millions of Americans. Commercial banks followed the Fed on Wednesday by cutting their prime lending rates, which govern consumer loans, by half a point to 8.5 per cent. The speed of the slide has prompted many companies to make sharp inventory adjustments, which could be completed fairly quickly, and with unemployment at 4 per cent, the big layoffs at firms like Amazon.com, Lucent Technologies and DaimlerChrysler may not have a serious impact. "It feels bad because it's so fast but because it's so fast it won't last that long," said Mr William Dudley, chief economist at Goldman Sachs in New York. The Fed clearly hopes the slide in consumer confidence will be slowed with the expectation of more rate cuts. The first will probably come on March 20th, when the Federal Reserve holds its next meeting. Many US economists predict that the short-term rates for inter-bank lending will come down to 5 per cent or even lower. Mr Greenspan raised expectations of more cuts when he told Congress last week that the economy had all but ceased growing. He is attracting some criticism for not doing it sooner, after raising rates six times from June 1999 to May 2000 to slow growth and combat inflation. He is making up for it now.