Going from bad to worse
The bad economic news keeps piling up.
On Thursday, three milestones showing the depths of the downturn were reached: The number of workers filing unemployment claims hit an all-time high, sales of new homes fell to an all-time low, and production of durable goods dropped for the fifth straight month, boosting inventories to their highest level since at least 1992.
And it’s not over yet. Today, the Commerce Department is scheduled to release its initial estimate of the U.S. gross domestic product -- the value of all goods and services produced by the economy -- for the fourth quarter of 2008. The report will essentially wrap into one sobering number all the grim developments that have been accumulating for weeks and months.
Many economists think the economic output declined in the fourth quarter at an annual rate of 5% or more -- which would make it the worst quarter for the U.S. economy since 1982.
“It will be bad,” said Nigel Gault, chief U.S. economist at IHS Global Insight, a forecasting firm in Lexington, Mass. He estimated that the economy shrank at a 5.3% annual rate in the three months that ended Dec. 31.
Moreover, Gault added, Thursday’s data indicate that the current quarter “will be just as bad.”
“It’s going to confirm what we already know, and that is that we’re in a severe recession,” said Ben Herzon, senior economist with forecasting firm Macroeconomic Advisers in St. Louis, who expects the report to show a decline of 5.5%.
President Obama met Thursday with his economic advisors at the White House -- as he has almost every day since taking office nine days earlier -- and pledged that his administration was working on a three-part plan to pull the economy out of the doldrums.
The plan includes the $819-billion stimulus package under consideration in Congress, an effort to shore up the fragile financial system and a program to address the housing and foreclosure crisis, which helped trigger the recession that began about a year ago.
The stimulus plan is “only one leg of the stool,” Obama said after the Oval Office meeting. “These other legs of the stool will be rolled out systematically in the coming weeks so that the American people will have a clear sense of a comprehensive strategy designed to put people back to work, reopen businesses and get credit flowing again.”
The stock market tumbled on the grim economic data, giving back nearly all of the gains it made Wednesday. The Dow Jones industrial average slid 226.44 points, or 2.7%, to 8,149.01. The broader Standard & Poor’s 500 index and Nasdaq composite index each gave up more than 3%. Financial stocks were the biggest losers.
On the job front, the Labor Department reported that the number of workers receiving unemployment benefits jumped 159,000 last week to 4.78 million, the most since the government began keeping records in 1967.
As a proportion of the workforce, which has grown substantially since the 1960s, the number of people on unemployment was the highest since 1983.
There was no sign of improvement in the housing market. The number of new homes sold in the U.S. plummeted 15% in November to a seasonally adjusted annual rate of 331,000, nearly half of the number a year earlier, the Census Bureau reported.
Based on that sales rate, it would take almost 13 months to eliminate the current backlog of unsold new homes, suggesting that construction -- already at a near-standstill -- would be unlikely to pick up any time soon.
And orders for durable goods -- including big-ticket purchases such as automobiles and refrigerators -- dropped 2.6%. Excluding a huge increase in military purchasing, the drop was 4.9%. Inventories of durable goods rose to their highest level since the government began keeping track in 1992.
“It’s looking like it’s going to be the most severe recession since the Great Depression, or at least one of the most severe,” Herzon said.
Thursday brought another wave of layoff announcements from U.S. companies, reflecting mounting distress in many corners of the economy, especially manufacturing. For some of the firms, it was the second time in the current downturn that they had unveiled cutbacks.
Cessna Aircraft Co., citing an increase in orders canceled or delayed, said it planned to lay off 2,000 workers. The Wichita, Kan., company earlier had announced 2,600 job cuts.
Oshkosh Corp., a truck maker based in Wisconsin, said it would cut 1,050 jobs, bringing to 2,400 the number of jobs eliminated since last summer.
Slot-machine maker International Game Technology said it would lay off 200 workers, citing the effect of the recession on the casino industry. The Nevada firm cut 500 jobs in November.
Eastman Kodak Co., the maker of photography products, said it would eliminate as many as 4,500 jobs, or about 18% of its workforce, after reporting a fourth-quarter loss.
Reflecting the turmoil in the financial services industry, money management firm OppenheimerFunds Inc. said it laid off 220 employees this week, or 9% of its workforce.
Times staff writers Martin Zimmerman in Los Angeles and Walter Hamilton in New York contributed to this report.