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Economy Still Has No Mercy

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The Tampa Tribune

Published: November 20, 2008

A swarm of dire economic reports on Wednesday pushed the Dow Jones industrials to a five-year low below 8,000 points. What happened? Consumer prices plunged by the largest amount in 61 years, housing starts fell to the lowest level on record and the Federal Reserve sharply lowered its projections for economic activity this year and next.

Dow - Drops Below 8,000

The Dow Jones Industrial Average fell 427 points to a five-year low below 8,000 Wednesday and the S&P 500 index was down more than 6 percent. Investors were reacting from a spate of bad news.

Consumer Prices - Biggest Drop In 61 Years

Consumer prices plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.

The Labor Department said Wednesday that consumer prices fell by 1 percent last month, the biggest one-month decline on records that go back to February 1947.

The worry is that the recession will further depress prices, hurting such industries as housing, autos and retailing, and contribute to a downward spiral that will feed on itself.

Housing Starts - Lowest on Record

Construction of new homes plunged last month to the lowest level on records going back nearly 50 years as U.S. builders slashed production.

The Commerce Department reported that construction of new homes and apartments fell 4.5 percent in October, the fourth straight monthly decline. Construction sank to an annual rate of 791,000 units from an upwardly revised September rate of 828,000 units.

The results were the lowest on government records dating back to January 1959. Wachovia Corp. economist Adam York forecasts that construction will fall to around 650,000 units by next summer. While that's going to be painful for the nation's homebuilders, it will help stabilize the overall U.S. housing market, he said.

The Fed Looks At Interest Rate Reduction

The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century.

With the economy forecast to lose traction, or even go into reverse, unemployment will move higher, the Fed predicted. Under its new economic forecast, the Fed thinks gross domestic product could be flat or grow by just 0.3 percent this year. GDP could actually shrink by 0.2 percent or expand by 1.1 percent next year.

The Associated Press

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