Economy Worse Now After Poor 2007 Finish

Tiny GDP Increase In Fourth Quarter Has Analysts Predicting Weaker 2008 First Quarter

(CBS/AP)  The U.S. economy nearly sputtered out in the final quarter of last year and is probably faring even worse now amid the continuing housing, credit and financial crises.

The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading - unchanged from a previous estimate a month ago - provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.

The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6 percent figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.

"Consumers are shown to be the most pessimistic about their expected future spending power since 1973," Bloomberg TV's Dierdre Bolton told CBS News' The Early Show. "And that was when Nixon was in office."

The newly released fourth-quarter GDP figure matched analysts' expectations.

Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes.

Against that backdrop, builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.

To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans - a privilege that had been afforded only to commercial banks.

Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3 percent pace in the fourth quarter. That was better than the 1.9 percent growth rate previously estimated but still marked a slowing from the third quarter's 2.8 percent pace.

Businesses - nervous about customers' waning appetite to buy given all the problems in the economy - cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.

Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2 percent growth rate.

Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3 percent at the end of last year, after being flat in the prior quarter.

There was a bright spot in the mostly gloomy report, however. Sales of U.S. goods and services to other countries grew at a 6.5 percent pace. That was better than the 4.8 percent growth rate previously estimated, although it was down sharply from the prior quarter's blistering 19.1 percent growth rate.

Over at Mall of America in Minnesota, retailers are doing their best to buck the downward trend.

"We had a very good February, and early indications are that March is going to be fine," the mall's executive vice president Maureen Bausch told The Early Show. "We're seeing retailers really market more heavily to get the customer with sales, private sales, customer appreciation days. Bausch added that, "we're all cautious."

U.S. exports have been helped by the sinking value of the U.S. dollar, which makes U.S. goods less expensive to foreign buyers. The U.S. dollar recently plunged to record lows against the euro and has fallen sharply against the Japanese yen.

The drooping dollar can aggravate inflation pressures.

An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9 percent in the fourth quarter. That was not as high as previously estimated but marked a big pickup from the third quarter's 1.8 percent pace.

Another gauge showed that "core" prices - excluding food and energy - grew at a rate of 2.5 percent at the end of last year. That was down from a previous estimate of a 2.7 percent pace but was up from the prior quarter's 2 percent growth rate.

The new core inflation figure is above the Fed's comfort zone - the upper bound of which is a 2 percent inflation rate.

Although the Fed's No. 1 job is trying to save the economy from a deep and prolonged recession, it is also keeping close tabs on inflation and soaring energy prices.

Oil prices are topping $105 a barrel. Gasoline prices have marched higher, too. High energy prices can spread inflation if lots of companies boost prices charged to customers for a wide range of goods and services. High energy prices also can be a drag on overall economic growth by crimping consumer spending.

The combination of slowing economic growth and rising inflation make the Fed's job more difficult. It also has raised fears the country may be headed for a bout of stagflation, a scenario the U.S. hasn't experienced since the 1970s. Bernanke, however, has said that's not the case.

[forthepeopl1]

Regulators Give Fremont General 60 Day Warning To Raise New Capital Or Sell Bank

this is only the beginning, hang on and take your money out of every bank and credic union and funds and run to hide it all..put under mattress




Last week, the company announced it agreed to sell the servicing rights to some $1.9 billion of its securitized mortgage loans to a subsidiary of Carrington Capital Management LLC for an undisclosed amount.

so i would guess it was penny on the dollar, for all that money...so who said they could sell 1.9 billion for pennys on the dollar???

i would do that to!!!! to keep my home...so why cant we do that????

[forthepeopl1]

Last week, the company announced it agreed to sell the servicing rights to some $1.9 billion of its securitized mortgage loans to a subsidiary of Carrington Capital Management LLC for an undisclosed amount.

sold 1.9 billion for penny on the dollars....so why not re fi at the same so familty can save thier homes

[analogtwin1]

Sumarongi,

While your statement that Americans are starving might on some level be correct, it is with a brisk stroll through your local Wal Mart that the evidence of starvation in America is juxtapposed by the scenery of quite different reality. A scenerio where the average Americans are grossly overweight by what one would presume is from an overidulgence in fat rich foods and sugary beverages. It is clear that the rich in this country are getting richer however, I don''t believe the poor are getting sicker for that reason. It is lack of education and initiative that create poverty along with the cyclical and generational impact of the culture of poverty which commonly states that "It''s the fault of the wealthy that we are poor".

[shanev137]

Recession?

We''ve been in a recession ever since W brought down the towers.

[dinkydog1]

I''m sure another tax cut for the rich would fix everything.

[hypnotoad72]

How does one make more consumers? Jobs so they can consume? Obviously not in the 21st century...

[element51]

ritewingman....You have no idea of how much I wish you were right. The problem though is that there is just to much month at the end of the money. Being on a fixed income has become a big problem now since costs keep rising at such a rapid rate. I finally figgured out that government and politics are not the answer. What I have to do is manage my own affairs and that begins with learning to say NO. If I can''t pay for it I don''t buy it. You must remember that the politicians don''t care about you so why do you defend them? At the end of the day we are all out here on our own to survive as best we can.

[sumarongi]

There are people in this country who are starving and that situation is getting worse every day as the jobs go away and prices rise. You ask why they don''''t get assistance? Because the bloody neocons cry and moan about every cent spent on programs meant to help them. We live in a society that will spend millions trying to free three whales from being trapped by ice. Whales have been dying for eons in the ice. They will spend $40.00 for a hamburger in a New York restaurant one day and then turn around and complain about tax money spent to help fellow humans in need. Dare to ask that minimum wage be raised to provide a basic quality of life to the poor and they are up in arms. Fund universal health care? What a shout goes out then. We live in a very sick and warped society.

[oscarez]

ritewingman - I hope you are maxing out your credit cards and buying a new car, truck and a $500,000.00 house to keep the U.S. economy growing. If not, you must be listening to liberal media. They must be telling you exactly how to think since you can''t do it yourself.

[oscarez]

"Consumers are shown to be the most pessimistic about their expected future spending power since 1973,"

George Bush is trying to top "Tricky ***" Nixon. Go George go.

[bm6005]

First of all - Movie-star, you''''re an idiot.
Posted by ritewingman

I believe that you''re the idiot who''s still drinking the GWB Kool-aid!!!

[gopack443]

I don''t wanna watch the news no more! From now my only news will come straight from the white house where everything is wonderful! There is no recession just a challenged economy, there was no failed war escalation just a surge. there is no unconstitutional "war" or personal freedom, just a patriot act.
Everything so much better at the white house that I want to live there. the real world stinks!