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November 26: Durable goods orders, consumer spending tumble

Source: Bloomberg

Washington -- U.S. business investment weakened last month and consumers are retrenching worldwide, reports today showed, heightening pressure on policy makers to take stronger steps to combat the credit squeeze. Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001, while British households slashed expenditures last quarter by the most in 13 years, government agencies said today. A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up.

The intensifying global economic downturn spurred China's central bank to cut its benchmark interest rate by the most in 11 years today, while the European Union proposed $259 billion in stimulus measures. In the U.S., President-elect Barack Obama held his third press conference in as many days to name former Federal Reserve Chairman Paul Volcker as an economic adviser. ``It's about as bad as the 1970s and 1980s,'' said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York. ``We're looking at back-to-back very deep'' slump in the global economy this quarter and next. See full story.

November 25: Home-price decline accelerates, GDP contracts

Source: Bloomberg

Washington -- The decline in U.S. house prices accelerated in September and the economy shrank in the third quarter at a faster pace than first estimated as the grip of the credit crunch tightened. The S&P/Case-Shiller home-price index fell 17.4 percent from a year earlier. The Commerce Department said gross domestic product dropped an annual 0.5 percent as household spending slid the most since 1980. While consumer confidence rose this month, the Conference Board’s gauge remained near the lowest on record.

“The economy is turning down pretty dramatically,” Treasury Secretary Henry Paulson said at a press conference in Washington to outline new government efforts to unfreeze credit. “It’s very important that lending continue to be available.” Today’s reports underscore concerns that the economy is at risk of a contractionary spiral as lenders cut back credit, causing spending to fall and companies to slash investments and payrolls. The Treasury and Federal Reserve today began two new programs to bring down interest rates on mortgages and consumer loans, committing at least $800 billion. See full story.

November 24: Citigroup gets U.S. rescue from losses, cash infusion

Source: MarketWatch

New York -- Citigroup Inc. received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week. The second-biggest U.S. bank by assets surged more than 70 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan in a joint statement. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The regulators stepped in to protect Citigroup from losses on a $306 billion pile of troubled U.S. home loans, commercial mortgages, subprime bonds and corporate loans when the firm’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries. The $20 billion of new cash comes on top of a $25 billion infusion the bank received last month under the Troubled Asset Relief Program, passed by Congress to shore up the financial industry. “It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.” See full story.

November 21: Weak economy's getting weaker, Conference Board says

Source: MarketWatch

Washington -- The U.S. economy is very weak and getting weaker, the Conference Board said Thursday. The index of leading economic indicators fell 0.8% in October, with negative contributions coming from six of the 10 component indicators, the private research group reported. The data point to a "sustained contraction." "The economy is contracting, and the pace of contraction may intensify over the next few months," said Ken Goldstein, an economist for the Conference Board. "The economy was very weak."

The drop in the October index "signals a clear deterioration in the economy since the summer," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. "But we knew that already. It's not clear there's anything new here." On Wednesday, the Federal Open Market Committee released updated forecasts. Members of the Federal Reserve's policy-setting panel now expect the economy to contract for four straight quarters before a gradual recovery takes hold late next year. Without using the word, the Fed's forecasting a recession lasting a year or so. MarketWatch

November 20: Stocks slide as hopes for automaker deal fade

Source: MarketWatch

New York -- U.S. stocks turned lower after briefly flirting with positive territory in afternoon trading Thursday, after it appeared unlikely Congress would soon approve emergency loans for ailing automakers. Senate Majority Leader Harry Reid said the Big Three automakers must submit a new plan to Congress in order to be considered for U.S. aid. Reid said auto-state senators had reached a compromise plan but that it wouldn't pass the House or Senate. The senators from both sides of the aisle had planned to present their proposal at a mid-afternoon news conference Thursday, according to a report from the Associated Press.

"In a normal operating environment, this group being headed for bankruptcy would be manageable but given where we are, a bailout plan may be necessary," said Owen Fitzpatrick, head of U.S. equity at Deutsche Bank. "Bankruptcy is not a body blow that the market could handle at this point." The Dow Jones Industrial Average fell 129 points, or 1.2%, to 7,897. The blue-chip average earlier fell to an intraday low of 7,774, just one point above its Oct. 10 low. See full story.

November 19: FOMC sees yearlong recession, minutes show

Source: MarketWatch

Washington -- Federal Reserve policymakers now expect the U.S. economy to contract for as much as a year, with the risk that the slowdown could persist for even longer, according to edited minutes of a closed-door meeting of the Federal Open Market Committee on Oct. 28 and 29. The Fed governors and Fed bank presidents "generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased," the minutes said.

Without using the word, the Fed is now forecasting a recession lasting a year or so. The committee said it "would take whatever steps were necessary to support the recovery." Read the minutes. Nevertheless, "the subsequent recovery would be relatively gradual," the committee said. "Financial stresses would recede only slowly, notwithstanding the extraordinary measures that had been taken." See full story.

November 18: Credit markets tumble on weakening economy, rescue concerns

Source: Bloomberg

New York -- Credit markets slumped as data showing a weakening economy exacerbated concern that the government may not be doing enough to stem the financial crisis. Top-rated securities backed by subprime or commercial mortgages fell to record lows and the cost of protecting against defaults on leveraged loans and investment-grade company bonds climbed, according to banks and benchmark credit-default swap indexes. Yields on Fannie Mae and Freddie Mac debt over benchmarks also approached records, according to data compiled by Bloomberg.

The declines came as Treasury Secretary Henry Paulson told lawmakers today that a $700 billion ``rescue package was not intended to be an economic stimulus or an economic recovery package'' and a report showed confidence among U.S. homebuilders dropping to the lowest level since record-keeping began. Prices paid to U.S. producers plunged in October by the most on record, the Labor Department said. The government's reversal last week on using the rescue package to buy devalued assets ``really created a problem with confidence,'' Gregory Peters, head of credit strategy at Morgan Stanley in New York, said in a telephone interview. ``In this market, investors of all types want steady leadership.'' See full story.

November 17: 'Prolonged' recession, higher joblessness seen likely

Source: MarketWatch

Washington -- The U.S. is in for a "prolonged" recession dragging into 2009, the National Association for Business Economics says. In its latest survey, the organization sees a contraction in inflation-adjusted gross domestic product of 2.6% in the cards for the fourth quarter, with the weakness carrying well into next year. A separate survey by MarketWatch shows economists more pessimistic, expecting GDP to contract at a 3.5% pace in the fourth quarter.

With a small GDP contraction of 0.3% on the books for the 2008 third quarter, such a forecast would satisfy a widely held definition of the U.S. economy being in recession -- two consecutive quarters of negative growth -- at the end of the year. A total of 96% of the economists surveyed by NABE believe that a recession has begun. See full story.

November 14: Retail sales drop in October by most on record

Source: Bloomberg

Washington -- Retail sales and prices of goods imported to the U.S. dropped by the most on record, signaling the economy may be in its worst slump in decades. Purchases fell 2.8 percent in October, the fourth straight decline, the Commerce Department said today in Washington. Labor Department figures showed import prices dropped 4.7 percent, pointing to a rising danger of deflation, and a private report said consumer confidence this month remained near the lowest level since 1980.

``The weakness in growth is intensifying and inflation pressures have evaporated,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who accurately projected the decline in sales. ``Deflation is a word that will be increasingly used over the coming months.'' Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to J.C. Penney Co. are cutting profit forecasts ahead of the year-end holiday shopping season, when many stores do most of their business. See full story.

November 13: Federal deficit balloons on bailout costs

Source: MarketWatch

Washington -- The U.S. federal government deficit soared in October to a record $237.2 billion, as the government invested more than $136 billion in various bank bailout programs, the Treasury reported Thursday. Excluding the $21.5 billion investment in Fannie Mae, Freddie Mac and the $115 billion investment in major banks, the October deficit was $100.7 billion, up from $56.8 billion a year ago.

The deficit was about $5 billion more than estimated by the Congressional Budget Office. The CBO said the investments in the Troubled Asset Relief Program should be accounted for a net present-value basis at $17 billion, not as cash outlays of $115 billion as the Treasury has been ordered to do by Congress. In fiscal 2008, which ended Sept. 30, the federal deficit was $455 billion, or about 3.2% of gross domestic product. See full story.

November 12: Paulson changes tack on financial rescue

Source: MarketWatch

Washington -- Treasury Secretary Henry Paulson laid out details for the next stage of the government's financial-market rescue package Wednesday, announcing that he has shelved the original plan to buy troubled mortgage assets while turning his attention to nonbank financial institutions and consumer finance. In a broad and deep review of the controversial $700 billion effort, Paulson defended the steps taken to date, but in the same breath said that financial markets remain fragile and that the focus must remain on "recovery and repair." See MarketWatch First Take commentary.

"I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world, we have already seen signs of improvement," Paulson said in a speech at the Treasury Department. But in a striking admission, Paulson said that buying up mortgage assets "is not the most effective way" to use government funding. Purchasing these so-called "toxic" assets was once the cornerstone of the rescue plan for financial markets and was almost the entire focus of Congress when the package was being debated before its enactment. But almost as soon as Treasury received the money, it decided that giving capital to banks in return for preferred stock was a better use of the funds. See full story.

November 11: U.S. economy expected to contract in 2009

Source: MarketWatch

Washington -- The U.S. economy is expected to shrink 0.4% in 2009 compared with 2008, according to the monthly survey of 49 economists published Monday by Blue Chip Economic Indicators. The economists also expect contractions in the Japanese, British and euro-zone economies in 2009. The economists' median forecast calls for U.S. gross domestic product to fall by 2.8% in the final three months of 2008 and by 1.5% in the first quarter of 2009. GDP growth of 0.2% is expected in the second quarter next year. Measured from the fourth quarter of 2008 to the fourth quarter of 2009, the Blue Chip forecasters expect GDP to rise 0.6%, compared with a forecast of 0.1% from the fourth quarter of 2007 to the fourth quarter of 2008.

"The consensus strongly suggests that the current recession will be deeper and last longer than those of 2001 and 1990-91," said Blue Chip editor Randell Moore in his commentary. "Some of our panelists believe it may rival the 1981-1982 downturn, but that is not yet the consensus view," he added. The nation's unemployment rate is expected to average 7.4% in 2009; it was 6.5% in October. See full story.

November 10: Washington dramatically alters AIG bailout

Source: MarketWatch

Washington -- The U.S. government dramatically changed its bailout of American International Group on Monday, giving the struggling insurance giant more time and financial flexibility to sell assets and repay the mountain of debt it owes taxpayers. The total value of the new plan -- roughly $150 billion -- represents the largest government support package extended to a private company in U.S. history.

The plan unveiled early Monday calls for the Treasury to invest $40 billion in preferred shares of New York-based AIG through its Troubled Asset Relief Program, or TARP. The Federal Reserve Bank of New York will also set up two new lending facilities to protect AIG from further losses on a lot of its exposures to collateralized debt obligations and mortgage-backed securities. The $40 billion investment will pay down the Federal Reserve's original $85 billion bridge loan, extended to AIG in September to save the company from bankruptcy. A new $60 billion Fed loan will have a lower interest rate and fewer fees and will have to be repaid in five years, rather than two. The changes give AIG a better chance of surviving, several analysts said. The new package is also a better deal for shareholders, because the government still ends up with nearly 80% of the company -- the same level of ownership as before. See full story.