Economy shrinks at fastest pace in 26 years

[Jasman0717 9]

WASHINGTON (AP) - The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

"Right now we're in the period of maximum recession stress, where the big cuts are being made," said economist Ken Mayland, president of ClearView Economics.

The new report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.

The faster downhill slide in the final quarter of last year came as the financial crisis - the worst since the 1930s - intensified.

Consumers at the end of the year slashed spending by the most in 28 years. They chopped spending on cars, furniture, appliances, clothes and other things. Businesses retrenched sharply, too, dropping the ax on equipment and software, home building and commercial construction.

Before Friday's report was released, many economists were projecting an annualized drop of 5 percent in the current January-March quarter. However, given the fourth quarter's showing and the dismal state of the jobs market, Mayland believes a decline of closer to 6 percent in the current quarter is possible.

The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Federal Reserve expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.

A smaller decline in the economy is expected for the second quarter of this year. But the new GDP figure - like the old one - marked the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.

American consumers - spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.

It's creating a self-perpetuating vicious cycle that Washington policymakers are finding hard to break.

To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

For all of 2008, the economy grew by just 1.1 percent, weaker than the government initially estimated. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.

With Friday's figures, Mayland lowered his forecast for this year to show a deeper contraction of just over 2 percent.

In the fourth quarter, consumers cut spending at a 4.3 percent pace. That was deeper than the initial 3.5 percent annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8 percent in the final quarter of last year. That also was deeper than first reported and was the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects by 21.1 percent, the most since the first quarter of 1975. Home builders slashed spending at a 22.2 percent pace, the most since the start of 2008.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

Businesses also cut investments in inventories - as they scrambled to reduce stocks in the face of dwindling customer demand - another factor contributing to the weaker fourth-quarter reading.

Fed Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a "severe contraction" and is likely to keep shrinking in the fix six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.

Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.

That's partly because many analysts don't think the early stages of any recovery will be vigorous, and because companies won't be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.

More job losses were announced this week. JPMorgan Chase & Co. (JPM) on Thursday said it would eliminate about 12,000 jobs as it absorbs the operations of failed savings and loan Washington Mutual Inc. That figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.

The NFL said Wednesday that the league dropped 169 jobs through buyouts, layoffs and other reductions. Textile maker Milliken & Co. said it would cut 650 jobs at facilities worldwide, while jeweler Zale Corp. (ZLC) said it will close 115 stores and eliminate 245 positions.

On Monday, troubled flash memory maker Spansion Inc. (SPSN) said it will lay off about 3,000 employees and computer chip maker Micron Technology Inc. (MU) announced it will slash as many as 2,000 workers by the end of August.

[I AM NOT THAT GUY 5,715]

Tougher times are on their way. No bail-out, no stimulus plan is going to stop this train wreck!

[Jasman0717 9]

Tougher times are on their way. No bail-out, no stimulus plan is going to stop this train wreck!

It sure is taking a big bite out of my retirement plans. My condo lost 300k in equity, my agency has made all of us take an unpaid furlough day each pay period that is costing me 400 in cash so I had to cut my deferred comp contributions yet gasoline and food continue to go up. #######

Edited February 27, 2009 by jasman0717

[I AM NOT THAT GUY 5,715]

Tougher times are on their way. No bail-out, no stimulus plan is going to stop this train wreck!

It sure is taking a big bite out of my retirement plans. My condo lost 300k in equity, my agency has made all of us take an unpaid furlough day each pay period that is costing me 400 in cash so I had to cut my deferred comp contributions yet gasoline and food continue to go up. #######

I quit looking at my SEP-IRA statements. It's too damn depressing! My only saving grace is the house is almost paid off!

Edited February 27, 2009 by Mister_Bill

[Jasman0717 9]

[

I quit looking at my SEP-IRA statements. It's too damn depressing! My only saving grace is the house is almost paid off!

I am just thankful I bailed out of the stock market last year. At least my 401k and deferred comp was making 2%. Many of my friends and even my tax accountant lost huge amounts.

[I AM NOT THAT GUY 5,715]

MARKET SNAPSHOT: Stocks On Track For Monthly Losses; S&P's Close Is In Focus

As stocks on Friday meandered to another month of losses, investors were especially focused on the S&P 500 Index and whether the broad market gauge would close above or below its November lows, with a finish above 740 to 750 seen as a victory of sorts.

"Only on a two-day close below 740 will I run for the hills. A close over 740 today would be considered a successful test of the November 2008 low," said Elliot Spar, market strategist at Stifel Nicolaus.

The S&P closed at 752.44 on Nov. 20, though the benchmark on Monday undercut that prior bear-market low.

"Hopefully we can get back to 800 on the S&P, but first we have to get past resistance at 752. If we can close above that one resistance level I think it would be a mild positive," said Robert Pavlik, chief market strategist at Banyan Partners LLC.

On Friday, financials led the declines, with Citigroup Inc. © down 37% on word the government was hiking its stake in the battered bank. .

Energy shares led sector gains and helped in offsetting the damage that had the S&P falling to a 12-year low before bouncing back.

At 2.15 p.m. Eastern, the S&P 500 (SPX) was down 4.23 points to 748.6, while the Dow Jones Industrial Average (DJI) was off 6.61 points to 7,175.47. The technology laden Nasdaq Composite (RIXF) gained 7.76 point to 1,399.23.

"For the session we are going to see a disproportionate amount of attention given to the close on the S&P, and whether we see a close below the cycle low from November that would signal potential large losses," said Alan Ruskin, an analyst with RBS Greenwich Capital, in comments ahead of the opening bell.

After a horrendous January, stocks were headed to a like scenario for the nearly-ended month. After the worst January performance in its 113-year history, the Dow industrials were on track for a February decline of 9.4%; the S&P stood poised for a monthly loss of 9.6% and the Nasdaq was pointed to a monthly drop of 5.2%.

For the S&P, "the 740 to 750 area that we've been hanging around here is pretty important because that is where we've seen support in 2002 and 2003. Below that there is really not a lot of market support from a technical perspective," said Paul Nolte, director of investments at Hinsdale Associates.

http://money.cnn.com/news/newsfeeds/articl...04_FORTUNE5.htm

If the bottom holds, you should see a rally on Monday. If not, then the S&P is looking for a new bottom. Wait and see.

[spookyturtle 9,466]

Things aren't good out there? Wow. Good thing there's another report to let us know.

[I AM NOT THAT GUY 5,715]

Things aren't good out there? Wow. Good thing there's another report to let us know.

[Jasman0717 9]

Wow, market down another 119 today

[spookyturtle 9,466]

Wow, market down another 119 today

TGIF

[Jasman0717 9]

Wow, market down another 119 today

TGIF

We might see the 6000s again on Monday

[I AM NOT THAT GUY 5,715]

Wow, market down another 119 today

TGIF

We might see the 6000s again on Monday

Yep. The market was looking for support today, and didn't find it. The market is still looking for a bottom.