Latest Stats Confirm Battered Economy

Reports Show Recessionary Unemployment, Declining Spending And Decreased Production

(CBS/AP)  The government released a quartet of reports Wednesday that paint a bleak picture of the nation's economy: Jobless claims remain at recessionary levels, Americans cut back on their spending by the largest amount since the 2001 terrorist attacks, orders to U.S. factories plummeted and homes sales fell to the lowest level in nearly 18 years.

The Labor Department reported that initial requests for unemployment benefits fell to a seasonally adjusted 529,000 from the previous week's upwardly revised figure of 543,000. But claims remain at recessionary levels. The four-week average, which smooths out fluctuations, rose to 518,000, its highest level since January 1983, when the economy was emerging from a steep recession.

One minor bright spot showed the number of people continuing to claim unemployment insurance dropped unexpectedly to 3.96 million, from the previous week's 4.02 million, which was the highest level in 25 years. The labor market has grown by about half since 1983.

Meanwhile, the Commerce Department reported that consumer spending plunged by 1 percent in October, even worse than the 0.9 percent decline that had been expected. Consumer spending accounts for two-thirds of total economic activity.

Orders to U.S. factories for big-ticket manufactured goods also plunged last month by the largest amount in two years. Orders for durable goods dropped by 6.2 percent, more than double the decline economists expected. The Commerce Department report showed widespread declines throughout manufacturing led by decreases in autos and airplanes.

The department also reported that new home sales decreased 5.3 percent last month to a seasonally adjusted annual sales pace of 433,000 homes, the lowest level since January 1991, another period when the country was undergoing a steep housing downturn.

The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago, and the lowest since September 2004.

The Dow Jones industrial average gained around 30 points in midday trading Wednesday. The stock market is coming off of three sessions of gains, so a possible giveback, especially with disappointing data, might be expected.

With the economy showing further signs that it is headed into a steep swoon, the administration and the Federal Reserve rolled out two new programs Tuesday that would provide up to $800 billion in an effort to get more loans flowing in such critical areas as mortgage lending, credit cards, auto loans and small business loans.

Credit markets liked the new efforts, but private economists said the new moves were not likely to be the last changes in the government's vast rescue program, which has already undergone significant alterations since it was passed by Congress on Oct. 3.

Analysts believe more work will need to be done because of their expectations that the economy's vital signs will continue to worsen as the country slips into what many believe could be the worst recession since the early 1980s.

There is also a big unknown concerning how consumers will respond if credit markets do loosen - will they reverse the trend of decreasing spending, which has dropped to the lowest level in 28 years.

"Consumers are nervous," Gerri Detweiler, a credit advisor at Credit.com told CBS News. "We borrowed ourselves into a corner and a lot of people are waking up and realizing that that isn't sustainable."

The unemployment rate has hit a 14-year high of 6.5 percent, putting pressure on personal incomes. The government reported Tuesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.5 percent in the July-September quarter, reflecting the fact that consumer spending fell at the fastest pace in 28 years.

Nariman Behravesh, an economist at IHS Global Insight, said he was expecting GDP to shrink at a 4 percent rate in the current quarter, reflecting the battering consumers are taking from the worst financial crisis since the 1930s. He predicted that the economy would remain in recession through the first half of next year.

"We are in the early stages of one of the worst recessions in the postwar period, even factoring in a massive stimulus program," Behravesh.

To revive the economy, President-elect Barack Obama has said a top priority will be working with Congress to enact a stimulus package with the goal of creating 2.5 million new jobs over the next two years. Analysts believe such an effort will require spending between $500 billion to $700 billion, a figure that would be on top of all the money being spent to stabilize the financial system.

In the latest efforts to stabilize the financial system, the Federal Reserve announced Tuesday that it will buy $200 billion in securities backed by different types of debt including credit card loans, auto loans, student loans and loans to small businesses. That market essentially froze in October, with investors taking $240 billion out of the credit system, reports CBS News correspondent Wyatt Andrews.

These types of loans as a result have become harder to obtain and have carried higher interest rates. A survey released Nov. 3 by the Federal Reserve found that a sizable percentages of banks had "continued to tighten their lending standards and terms on all major loan categories over the previous three months."

"What this does is hopefully jumpstarts that market, allows investors to invest in these securities," Timothy Ryan, of the Securities Industry and Financial Markets Association, told CBS News.

But while these moves are intended to stabilize banks and thaw the frozen flow of credit, USC business professor Lawrence Harris told CBS News correspondent Larry Miller, "There's simply no sense extending credit to people if they can’t pay off the credit they already have."

The Fed also announced that it will spend $500 billion to buy mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks.

This would greatly expand an initial modest effort announced in September with the goal of creating increased demand for mortgage-related assets. The hope is that this will drive down the price of mortgages and make home loans more available.

Analysts predict the Fed program could send mortgage rates down by as much as one-half to a full percentage point in coming months, helping to spur demand in the beleaguered housing market, which is suffering its worst downturn in decades.

The latest federal moves raised U.S. commitments to contain the financial crisis to nearly $7 trillion - though no one thinks the government will actually spend anything like that figure.

In the case of the Federal Reserve, the amount covers huge loans that financial institutions will have to pay back. In the case of the Treasury rescue effort, the government will at some point sell the stock it owns back to the banks, presumably when the banking system is doing better and the stock will be worth more.

[wardoglrs]

Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress'' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It''s bailing out the financiers, the banks, the Wall Streeters."

That describes the current bailout package to a T. And we''re being told it''s unavoidable.

[wardoglrs]

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

* The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.

* Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.

* Then there''s this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

[whitemale08]

WOO HOO!!!!!

I''M A DEBT-MONKEY!!!!!

WOOO HOOO!!!!

I KEEP AMERICA STRONG AND VIBRANT!!!!!!

I GO TO THE MALL EVERY CHANCE I GET AND WORK THE DEBT-FARMS SO MY MASTER CAN HARVEST A HEFTY ''YIELD''!!!!

I AM AMERICA''S DEBT-MONKEY AND I AM AN AMERICAN D*MNIT!!!

WOOO HOOO!!!!1

[riddelup]

The retailers who do not have a good Christmas season could well end up on the chopping block.

[walt1944-2009]

Years ago, during WW II, people used to plant "Victory Gardens" because food was scare with the country fighting a war on 2 fronts and all the men fighting in Europe and the Pacific.

The same thing happened during the Vietnam War with people planting veggies in their back yards instead of flowers. People even planted veggies in vacant lots, with the permission of the owner who usually got a "cut" of the produce.

Today, people have forgotten how to plant anything as we are too busy looking to drill for oil, and there are no vacant lots left anywhere because landowners would rather sell the land to developers who put up strip malls and let the stores stand empty!

We are truly a nation that has lost its way and you can blame most of it on 25 years of Republican influence together with the influence of Corporate America and its obssession with PROFIT!

SIG HEIL, GREED IS GOOD!!!, BUSH!!!



Today,

[petro49l]

America does not need brain-damaged incompetents like Alan Greenspan. His mismanagement of the U.S. economy led to this debacle. He sold-out this country to OPEC and its banking cartel. Greenspan suffered brain injuries from hard liquor and street drugs.

[talk2chief]

Americans flock to Walmart because they pay what the market will bear. For example; if a consumer is willing to purchase a product (fill in the blank) made in China for $20.00 compared to a similar product made in America for $30.00, 99% of all consumers will purchase the cheaper product. (This is in fact because it will affect the consumers bottom line) This is Walmarts business model, and guess what it works. Question is, how do we compete with cheaper labor? We adjust salaries to reflect compensation based on productivity and skill set not based on punching a time card. We have for too long rewarded mediocrity.

[talk2chief]

If a company X produces product Y and labor unions with minimally skilled labor charges Z. Whereby X cannot, compete with a foreign X in pricing. Z in America has no job. This is not rocket science.

[talk2chief]

And then they''''ll promptly have those innovations produced in China using cheap labor.

Posted by incog-nito

I challenge you to take a tour at any American university and conduct a survey on how many Americans compared to foreign students attend schools of engineering, medicine and technical science, there you would find an exodus of intellectual outsourcing. Especially when labor is cheaper abroad. So who is greedy? Labor or management?

[incog-nito]

Posted by talk2chief at 11:30 AM : Nov 27, 2008

Yes, American ingenuity will create new technologies and innovations, as we have always done!

And then they''ll promptly have those innovations produced in China using cheap labor.

[talk2chief]

I am amazed at all the qualified economic geniuses on this post. Truly we are blessed. However, I ask this simple humble question. Who provides real jobs, the government or the private sector? Think hard... labor is just as greedy as the corporate boardroom. Granted the scale of greed varies, but greed non-the-less. I support economic Darwinism. If you fail, you fail.. no taxpayer funded bailout. From the ashes a Phoenix will rise, called American ingenuity and invention. That is, if we have not already become too lazy. We made our bed, time to swallow the pill, time to knuckle up and chip in, whatever clichi trips your trigger, it''s time to go back to the drawing board, and I would start with becoming a leader in alternative fuel sources.

[flsunjnky]

Someone seems to be missing the point a bit. They can free up credit etc. but if you don''t have a job, you can''t use credit anyway. Concentrate on the obvious!

[whitemale08]

How is this news?

We''ve been telling you for the last 8 years that the economy was terrible.

Only idiots believed that ''debt growth'' was actually ''economic growth'' or instead of wage increases you could apply for ''home-equity credit-lines''.

I''ve got news for CBS and the rest of the media:

DEBT GROWTH IS NOT ECONOMIC GROWTH!!!!!!

HOME-EQUITY CREDIT LINES CANNOT REPLACE A GOOD SALARY!!!

DEBT IS NOT WEALTH!!!!!!

DEBT IS NOT PROSPERITY!!!!!!!

QUIT SAYING THAT AMERICA IS PROSPEROUS WHEN WE ARE FLAT BROKE!!!!!!1

[glenn_lewis]

GOT SOME NEWS FOR YA DEAR. THE REASON THE NUMBER OF PEOPLE CLAIMING UNEMPLOYMENT BENEFITS DECLINED IS BECAUSE CHECKS HAVE STOPPED. THE EXTENSION IS NOT YET IN EFFECT!

[irmcvet97]

Nice idea, but Big Money says no. Bye-bye idea.

Posted by DeckardBR at 11:55 PM : Nov 26, 2008

Why? Because the Greedy say NO means what to me. We have just trashed, tossed out the "Trickle Down" Republican''s haven''t we. Now we can send the Democrats, who are much more in line with the Working Guys attitude, a message. Get it right or we''ll find someone else.

[boycottchina]

WE DON''T WANT LOANS!!
WE DON''T WANT MORE DEBT!!
Giving trillions of OUR dollars to bail out Wall Street billionaires does NOTHING to help the American people!
Washington is simply making good on the Wall Street bribes that put them in power!!
BOYCOTT CHINA!
BUY DOMESTIC ONLY!

[boycottchina]

Consumers buying foreign made goods comes home to roost!
CONSUMERS not Washington have the power to CHANGE the economy.
With consumer spending making up more than 65% of the economy, it''s time to boycott ALL foreign made goods!
Every day another US factory moves to China!
Taking with it tens of thousands of AMERICAN jobs!
And in return we are given shoddy,poisoned and over priced imports!
Stop this madness before it''s too late.
Washington will NEVER do ANYTHING to help the American people.
They are on the payroll of US companies who are moving to China.

[mikezembill]

The goverment thinks that they can keep feeding the Ameican people horseshi! one spoon full at a time until they feed you the whole load and until the American people stand up and say enough is enough it will never stop.

[mikezembill]

It may take a civil war in this country to get congress to understand how the middle class are hurting. All they do is talk S-H-I-T all the time and try to make you think they know if you took all there money away and they had little to nothing they may understand.

[mikezembill]

We need to balance trade one way or the other with what ever it takes the American people need to stand up and be counted. This will not happen when the person next door does not have a job it is a recession when you lose yours it is a depression and we are as close to a depression as we can get with out being in one why do you think the big banks are holding the money that the taxpayer gave them?