Bloomberg News: Slump Probably Deepened as Credit Froze: U.S. Economy Preview
Timothy R. Homan writes:
The worst credit crisis since the Great Depression sent the U.S. economy into a tailspin at the end of 2008 as consumers and businesses retrenched, reports this week may show.
Gross domestic product contracted at a 5.5 percent annual rate from October through December, the biggest drop since 1982, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due Jan. 30.
President Barack Obama and Congress are working to pass an economic stimulus plan worth $825 billion by mid-February to stem what may be the worst recession in the postwar era. Federal Reserve policy makers, under Chairman Ben S. Bernanke, also meet this week amid growing expectations they’ll unveil more tools to unclog lending after having cut interest rates to as low as zero.
The recession “entered a more negative and pernicious phase in the fourth quarter,” said Brian Bethune, director of financial economics at IHS Global Insight in Lexington, Massachusetts. It’s “potentially the worst recession that we’ve seen in terms of the severity and the depth.”
The projected contraction last quarter would follow a drop of 0.5 percent at an annual pace in the prior three months.
Consumer spending, the largest part of the economy, is forecast to have dropped at a 3.5 percent pace last quarter after slumping at a 3.8 percent rate the previous three months. It would be the first time purchases declined more than 3 percent in consecutive quarters since records began in 1947.
Spending is projected to keep dropping in the first six months of 2009, according to a Bloomberg survey.
Consumers are losing confidence and retrenching as the labor market weakens. The U.S. lost 2.6 million jobs last year, the most since 1945. The unemployment rate climbed to 7.2 percent in December, the highest in almost 16 years.
A report from the Conference Board on Jan. 27 is projected to show consumer confidence this month held near a record low. A similar report from Reuters/University of Michigan three days later may show sentiment held near the lowest level in almost three decades.
Household wealth is evaporating as foreclosures push down home prices. Property values in 20 U.S. cities fell in November at the fastest pace on record, economists forecast figures from S&P/Case-Shiller on Jan. 27 will show.
Not a bright picture for the American economy–or for American families. It may take a long time to dig ourselves out of this economic hole, but we need to start now before it becomes even worse. My parents were both children during the Great Depression of the ’30s. I’m not anxious for American families to suffer a repeat of the stories my parents told of lost homes, lost jobs, family break-up, and hunger.
Congress must be pushed and pressured into completing the Economic Recovery Plan quickly and having it on the desk of President by mid-Feb at the latest.