Debt Shows First Drop as Slump Squeezes Consumers

[question everything]

DECEMBER 12, 2008

Debt Shows First Drop as Slump Squeezes Consumers
By PHIL IZZO, BRENDA CRONIN and SUDEEP REDDY
WSJ

The U.S. economy is deteriorating more rapidly than expected just weeks ago, indicating the recession will be deeper and longer than feared as households and businesses struggle with the most stress they have faced in decades. New Federal Reserve data revealed that U.S. households paid down debt for the first time since the central bank started collecting the information in 1952. While a positive longer-term trend, the higher savings rate means that consumers are spending less. That is a punishing turn for an economy in which consumer spending accounts for 70% of gross domestic product.

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Another government report indicated that initial unemployment claims in the first week of December surged 58,000 from a week earlier to 573,000, a 26-year high, as companies slash payrolls before the end of the year. The number of workers continuing to collect jobless benefits jumped 338,000 to 4.43 million in the week ending Nov. 29 from the prior week -- matching the largest weekly increase on record, in November 1974 -- with little relief in sight as businesses brace for a lengthy downturn. The government data spurred forecasters to update their expectations for the depth of the contraction, which is now expected to continue through the first half of next year. The increasingly grim news is likely to give a push to President-elect Barack Obama's plans for massive government spending to jolt the economy.

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The financial turmoil over the past year has taken a deep toll on consumers and businesses. The Federal Reserve said Thursday that U.S. household net worth fell 4.7% to $56.5 trillion in the third quarter, marking the fourth-straight quarterly decline, as home values, stocks and other assets lost value. Household net worth was down 11% from a year earlier.

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Adding to consumers' pain: The end of the recession isn't likely to mark the end of job losses. In past recessions, labor-market contraction has continued for months after a downturn's official end. The economists surveyed, on average, forecast just an 8.1% rate for December 2009 as job cuts continue into 2010.

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http://online.wsj.com/article/SB122900188976898065.html (subscription)

[question everything]

1. Was bound to happen. We are trying to cut expenses and by doing so

we hurt the economy.