Somber Fed Says Economy Has Lost Punch Wednesday January 16, 5:33 PM EST WASHINGTON (AP) — Retailers, home builders and many manufacturers should brace for even more rough times ahead, a somber Federal Reserve suggested Wednesday amid growing fears that the U.S. might be sliding into recession. The Fed's snapshot of business conditions showed a national economy losing momentum heading into the new year and a future riddled with uncertainty. The persistent housing slump and harder-to-get credit are making people and businesses ever more cautious, it said. Separately on Wednesday, more big banks reported losses and said people were having trouble making payments for everything from credit cards to cars. Stocks were mostly down for the day, the Dow Jones industrial average declining 34.95 points, or 0.28 percent. The Fed report was the unwelcome icing on a recent batch of economic indicators — ranging from a plunge in retail sales to a big jump in unemployment — raising concern that the country is heading for its first recession since 2001. At the beginning of last year, many economists put the chance of a recession at less than 1-in-3; now an increasing number say 50-50 or even worse. Goldman Sachs, the biggest investment bank on Wall Street, thinks a recession is inevitable this year. The Fed report said the economy did grow during the survey period — from the middle of November through December — but more slowly than during the late fall. Credit problems intensified in December as did troubles in the housing market. That threw Wall Street into new turbulence. The economy probably grew at a feeble pace of about 1.5 percent or less in the final three months of last year and will stay weak in the first quarter of this year as consumers — major shapers of the nation's economic health — tighten their belts. After retailers suffered their worst sales season in five years in 2007, "the outlook for 2008 among retail merchants was cautious," the Fed said in its report. And the outlook for housing remains gloomy: "weak during the first part of 2008." Fallout from a meltdown in risky "subprime" mortgages continued to sock financial institutions. JPMorgan Chase & Co. and Wells Fargo Inc. both reported Wednesday that their earnings fell — raising fresh fears of a widespread lending crisis. Federal Reserve Chairman Ben Bernanke, in a speech last week, pledged to aggressively cut a key interest rate as needed to try to prevent all these problems from plunging the economy into a major recession. That may well mean a bold half-point cut at the end of a two-day meeting on Jan. 30. The Fed started cutting rates in September, but some critics on Wall Street and elsewhere say Bernanke should have acted sooner and more forcefully. "Clearly there is a high level of caution," said Ken Mayland, president of ClearView Economics. "Everyone's guard is up to protect and insulate one's businesses from the high degree of sluggishness that is expected to prevail in the months ahead." With voters expressing angst over the economy, the White House and the Democrat-controlled Congress are exploring ways — including the possibility of temporary tax rebates — to get money quickly into the hands of consumers and help stimulate spending. Presidential contenders also are floating their own ideas for rescue packages. The chairman of Congress' Joint Economic Committee said he had spoken Monday with Bernanke and found him "generally supportive" of lawmakers and Bush approving a stimulus bill. Bernanke, who hasn't supported any specific plan, testifies before the House Budget Committee Thursday. The recent leap in the nation's unemployment rate, from 4.7 percent in November to 5 percent in December, rang one of the loudest warning bells. It raised concerns that consumers would clamp down, sending the economy into a tailspin. On Wednesday, the Fed observed that "holiday sales were generally disappointing" and pointed to "further weakness in auto sales." A day earlier, the government reported that shoppers cut back on their spending by 0.4 percent in December, wrapping up the weakest year for retailers since 2002. Adding to worry about how consumers will hold up: Consumer confidence, as measured by the RBC Cash Index, fell in January to its lowest point in figures dating back to 2002. The housing picture remains bleak — "quite weak" in all Fed regions, the survey said. Sales continued to be sluggish, and inventories of unsold homes "persisted at historically high levels." Manufacturing activity varied around the country, but there was one common thread: Factories reported "pronounced weakness" in housing-related industries as well as the automobile business. The Fed, in a separate report Wednesday, said production by big industry was flat in December, fresh evidence of an economic slowdown. Mayland was more graphic. "Manufacturers have gotten cold feet," he said. Businesses are having to cope with high costs for energy and food, too. That's squeezing profit margins for companies and boosting prices to some customers. Consumer prices moderated in December, rising by 0.3 percent, the Labor Department reported Wednesday. For all of 2007, prices jumped 4.1 percent, the biggest increase in 17 years. ---------------------- Imagine if I highlighted the whole effing thing. Damn the Fed for being drug down by that whining liberal press.
^I can't believe news outlets like AP that put quotes around "subprime" as if it's a word in a different language. If you know enough to read about rate cuts, you should have seen the word subprime (or sub-prime) before. sorry- just a random pet peeve.
CNBC is funny. They have an interest in a strong stock market, otherwise no one will watch. I find Larry Kudlow and some of his guests to be total hacks. If our economy can be forced into recession by a bunch of talk, then how fragile is it? Seriously, that sounds like a silly theory to me. It's just funny watching some of the CNBC people squirm through all this and be in utter denial of what we are facing. I've been watching it the past year because I felt the bubble was about to burst, and they keep telling everyone to BUY BUY BUY even as things go lower. When things go up, they say BUY because it's going higher. When things are going down, they say "people are stupid, they are overeacting, and NOW it's the time to buy because stocks are cheap!" Yeah right. I really enjoy whenever Jim Rodgers is on there though. He is brilliant and knows what he is talking about.
Rogers was the genius behind Quantum. It wasn't Soros, although most people like to think so. Rogers talks about the super commodity bull cycle we are in right now. It is year 6 of a 15-20 year bull cycle. You can find ETF's that invest in them like DBA and some of the precious metal ETF's (GLD, SLV) as well. I still think the market has some more ways down to go. I just don't see enough fear in the market right now. Another 500-600 points on the DJIA or so should do it. I think everyone is waiting for a 75 bps cut by the Fed, and thus are complacent. The Fed will cave into the pressure of the politico's and the general public by cutting rates again and again just to save the stock market. Recession's in itself are not bad or unnatural. They are normal happenings that are required every so often to re-balance the natural order of things. Inflation is clearly out of control, and the Fed is doing nothing about it. This anticipated next round of rate cuts will just plunge the US Dollar further into oblivion. This will send commodity prices higher and higher. Thus a good time to be in any sort of commodity, namely agriculture, and metals. The only bright point for bullish investors is the TED Spread is not showing as much credit disturbance or turmoil as the indicator had been showing a few months ago. On the international front, India (INP) and Malaysia (EWM) seem to be shaking off any US market contagion that is present. I don't factor in China, since its inherently volatile although Shangai is still up for the year. But when you have terrible December holiday retail figures coupled with the job figures, you know the trouble is just getting started for the overall economy.
hey mr. brightside do you have any idea why INP trades so far above it's NAV? i haven't been able to figure it out.
From today's NYTs Jr may hold stimulus package hostage as leverage to press congress to make tax cuts permanent. -------------- WASHINGTON — As President Bush weighs a stimulus package to jump-start the sagging economy, a debate has broken out inside the White House over how hard to push Congress to make Mr. Bush’s tax cuts permanent — a priority for the president, but one that Democrats say would kill the plan before it is even considered. On one side, according to people familiar with the deliberations, is a powerful group of pragmatists, including Henry M. Paulson Jr., the treasury secretary; Joshua B. Bolten, the White House chief of staff; and Ed Gillespie, counselor to Mr. Bush. They argue that the need for a stimulus is urgent, but have expressed concern that the administration may have to scale back its ambitions for permanent tax cuts to get a package through Congress. On the other side, these people say, are staunch economic conservatives like Keith B. Hennessey, the new director of Mr. Bush’s National Economic Council. They have reservations about the need for an economic rescue package and maintain that if the White House proposes one, it should use the plan as leverage to press lawmakers into making the tax cuts permanent. http://www.nytimes.com/2008/01/17/u...44c00f80b73609&ei=5088&partner=rssnyt&emc=rss
It's r****ded that the libpigs are even considering raising taxes right now. What planet are they living on???!? They're completely out of touch and just behaving out of spite (again). Children.
yeah, but that philosophy seemingly ignores inflation. if you decrease your revenue flows, you have to decrease your expenditures one way or the other. bernake basically just stated that a few minutes ago.
I find it amusing that someone who pretends to know stuff about economics thinks that potentially raising taxes on relatively high income people 3 years from now is somehow going to have a significant impact on a recession being caused in large part due to consumer spending by low & middle income people.
fools is gettin blasted out there rite now! ahahahahaha they panickin they panickin.......they gonna have to return those gi joe w/ the kung fooo grips they bought lil jimmy for xmas!
The tax cuts should only be extended to those making less than $200,000 in a household. The rich will not spend their savings, but instead just save it. The lower class would spend it, and that WOULD stimulate the economy. Otherwise, we are just witnessing a pyramid scheme.
Good find, Sam. Bernake said the same thing regarding a stimulus oriented toward the lower income groups. It is sure in accord with common sense that those who need to spend virtually every cent they get just to get by, save less than those who don't need to save every cent.
Pretty interesting time for me to be taking Financial Markets and Institutions this semester. My professor, Lewis Spellman (PhD Stanford 1971) is actually a pretty damn respected economist with some crazy credentials: Assistant to the Chairman, President's Council of Economic Advisors, The White House Economist, Federal Reserve Board Today he predicted that the backlash from the mortgage crisis will spread globally, and we'll be seeing the effects of it even 10 years down the road. Like most other economists, he says the recession is coming very soon, and there is going to be a lot of litigation against the larger banks as well as those parties selling Credit Default Swaps. Of course a lot of the CDS shops are now bankrupt, so the rating agencies are going to bear the brunt of it since they gave a lot of them an investment grade ratings. Crazy stuff. Time to grab your ankles and take it I guess.
