Consumers cut spending, job outlook bleak
WASHINGTON (Reuters) - Consumers cut their spending in November and orders for costly manufactured goods slumped again, while claims for jobless aid last week hit a 26-year high as a year-old recession tightened its grip.
But there were a few glimmers of hope in the latest batch of generally gloomy data as a big drop in prices for gasoline and other goods meant consumers got more for each dollar spent and business investment showed some signs of perking up.
It didn't alter the picture of an economy still skidding deeper into recession but Wednesday's reports led some analysts to trim the rate at which they expect national output of goods and services to shrink as 2008 draws to a close.
David Greenlaw, an economist with Morgan Stanley in New York cited "modest upside surprises in consumption and capital spending" as he reduced an estimate of fourth-quarter gross domestic product contraction to a 5.9 percent annual rate from 6.4 percent, still the steepest drop in nearly 27 years.
There was another potentially hopeful sign that a determined bid by policy-makers to stimulate the economy by pushing interest rates down might be bearing fruit. The Mortgage Bankers Association said applications for new mortgage loans hit the highest level in five years last week.
The housing sector was "ground zero" for the current downturn after a lengthy period of reckless lending and soaring prices that began to crash in 2007.
Stock markets closed early after light pre-Christmas trading. The Dow Jones industrial average .DJI rose 48 points to end at 8,468 while the Nasdaq Composite Index .IXIC added 3 points to close at 1,524.
U.S. Treasury debt prices were little changed and bond markets also closed early. Benchmark 10-year Treasury note yields, which move inversely to prices, were yielding 2.19 percent after hitting a five-decade low of 2.04 percent earlier in the week.
FED MOVES PAYING OFF
Bankers say a Federal Reserve move to buy up to $500 billion of mortgage securities backed by Fannie Mae (FNM.P), Freddie Mac (FRE.P) and Ginnie Mae is bringing rates to record lows, leading to a wave of refinancings besides offering a boon for qualified buyers.
The interest rate on 30-year fixed-rate mortgage loans dropped to a 37-year low of 5.14 percent this week, according to Freddie Mac.
Consumers remain under severe pressure, as was apparent in a Commerce Department report showing that spending in November fell for a fifth straight month and incomes shrank.
Spending fell 0.6 percent after dropping 1 percent in October. As a result of falling prices for goods from gasoline to clothing, though, inflation-adjusted spending was up 0.6 percent, the first increase since May.
The report also showed incomes fell 0.2 percent after a slight gain in October, a sign of the strain consumers were under as the holiday shopping season started.
JOB OUTLOOK BLEAK Continued...
