Reports Paint Grim U.S. Economic Picture

Work progresses on a new home in a Little Rock, Ark. neighborhood Tuesday, Feb. 19, 2008. The Commerce Department said that construction of new homes and apartments rose by 0.8 percent to a seasonally adjusted annual rate of 1.012 million units in January. That was the first increase since October and followed a plunge of 14.8 percent in December.
AP Photo/Danny Johnston
U.S. consumer prices in November plunged by the largest amount on records going back 61 years as energy costs posted nearly double the decline of the previous month.

The Labor Department reported Tuesday that consumer prices fell 1.7 percent in November, surpassing the previous record decline of 1 percent set in October. The drop was the largest one-month decline dating to February 1947.

The huge decreases reflect the severe recession gripping the country and raise the pressure for the Federal Reserve to act decisively to guard against a debilitating bout of deflation.

In other economic news, the Commerce Department reported that construction of new homes fell in November by 18.9 percent, the biggest drop in a quarter-century. The steep decline pushed construction down to a seasonally adjusted annual rate of 625,000 homes, the slowest pace on records that go back to 1959.

On Wall Street, Goldman Sachs Group Inc. on Tuesday reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter.

The loss proves the turmoil in the financial markets has tripped up even the best-run financial institutions. The New York-based bank has long been considered the premier investment bank on Wall Street, and in recent quarters, the sturdiest bank amid the market turmoil.

The Fed wraps up a two-day meeting Tuesday. Economists expect the central bank to cut the federal funds rate, already at a low of 1 percent, by another half-point in an effort to keep the recession from worsening.

Experts agree another interest rate cut will do little to get banks lending and consumers borrowing again, reports CBS News' Alexis Christoforous.

The benefit of a Fed rate reduction may be mostly psychological, rather than economic.

"It's a feel-good thing," said economist Ken Mayland, president of ClearView Economics. "Hopefully this a bridge to better confidence."

Only a few months ago, some anticipated that the Fed would start raising interest rates to battle a prolonged surge in energy costs. But since September, the Fed's focus has switched to trying to prevent the worst financial crisis since the Great Depression of the 1930s from pushing the country into a deeper recession.

The turnaround in inflation reflects a huge drop in energy costs. Energy prices fell by a record 17 percent in November, nearly double the 8.6 percent decline in October. Both declines represented record drops.

Food costs posted a modest 0.2 percent rise in November, the smallest increase in eight months.

Core inflation, excluding food and energy, showed no increase at all in November following a 0.1 percent drop in October.