November 26, 2008 / 2:30 PM / 9 years ago

Consumers cut spending

NEW YORK (Reuters) - Housing, consumer spending and business investment all weakened sharply last month as the dizzying downward spiral of the world’s largest economy gathered speed, data showed on Wednesday.

Economic reports also showed unemployment rolls remained swollen at recessionary levels in the latest week, providing further support to economists who think the U.S. economy has entered its worst downturn in decades.

Consumer confidence fell to a 28-year low in November and tumbling durable goods orders for October illustrated the severe constraints on the economy as households and businesses alike cut spending plans on costly manufactured goods.

“The durables is not a pleasant number. It’s horrid across the board,” said Boris Schlossberg, director of currency research at GFT Forex in New York.

Orders for durable goods such as cars, machinery and computers dropped 6.2 percent in October, more than twice as much as Wall Street economists had forecast, as demand weakened across nearly every major sector of manufacturing.

The report’s proxy for businesses’ investment intentions, orders for non-defense capital goods excluding aircraft, fell 4 percent in October after decreasing 3.3 percent in September.

The slew of weak data pushed the prices of U.S. government bonds sharply higher and the dollar gained against the currencies of major trading partners. U.S. stocks also rallied on strength in the tech sector after Tuesday’s sharp sell-off.

The deluge of data included a report from the Institute for Supply Management-Chicago showing business activity in the U.S. Midwest contracted in November at a more severe rate than expected.

LATEST GRIM REMINDER

In just the latest reminder that the current global financial and economic crisis originated in the U.S. housing market, data showed sales of newly built U.S. single-family homes dropped sharply in October and were running at levels last seen 17-1/2 years ago.

The median sales price fell also fell to its lowest since September 2004.

“The good news is that the numbers are so bad -- you have to get worse before you get better,” said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

“As for the other data today, there is no question we are in recession. I think we are in a period right now where everyone is cutting back in anticipation of some worse data ahead.”

In one bit of good news, U.S. 30-year mortgage rates fell for a fourth straight week, according to a survey released on Wednesday by home funding company Freddie Mac.

U.S. 30-year mortgage rates fell to an average of 5.97 percent in the week ending November 26, down from 6.04 percent last week.

U.S. consumers cut spending during October at the steepest rate in more than seven years. The spending that fuels two-thirds of U.S. economic activity dropped 1.0 percent, its biggest decline since the air attacks against the United States seven years ago in September 2001.

It was a fourth straight monthly drop in spending and underlined how a credit crunch, falling home prices and steady job losses were sapping consumers’ will and ability to spend.

Worse yet, a survey showed U.S. consumer confidence fell to a 28-year low in November as mounting job losses, falling incomes and tumbling household wealth battered sentiment, highlighting the troubles for the economy ahead.

The Reuters/University of Michigan Surveys of Consumers said its final index reading on consumer sentiment for November fell to 55.3 from October’s 57.6. That was its lowest since 1980.

The index came in well below economists’ expectations of 57.7, according to the median of forecasts in a Reuters poll, and deteriorated sharply since the middle of the month, when the slide in gasoline prices cheered consumers.

The Labor Department said new claims for jobless benefits fell 14,000 last week. But that still left claims at a seasonally adjusted 529,000 -- well above levels that economists typically associate with recessionary economic conditions.

A four-week moving average of claims that irons out weekly fluctuations climbed to 518,000 last week from 507,000 the week before, its highest reading since January 1983.

Additional reporting by Glenn Somerville and Lucia Mutikani in Washington; Editing by Jan Paschal

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