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US economy sinks deeper as layoffs mount

US economy sinks deeper as layoffs mount
AP
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First Published: Fri, Dec 05 2008. 09 52 AM IST
Updated: Fri, Dec 05 2008. 09 52 AM IST
Washington: Federal Reserve Chairman Ben Bernanke pleaded on Thursday for more government action to relieve the foreclosure crisis and break a vicious cycle in which the housing meltdown is plunging the United States deeper into recession.
Beaten-down shoppers, meanwhile, handed retailers their worst month in at least 39 years. And the number of people drawing jobless benefits hit a 26-year high, with the November employment figures due out Friday likely to show more deep job cuts.
With soaring foreclosures feeding the country’s economic woes, Bernanke called on the government to ratchet up efforts to help people at risk of losing their homes.
Despite steps already taken to try to ease the crisis, foreclosures remain “too high,” hurting homeowners, lenders and the broader economy, Bernanke told a Fed conference here on housing finance.
Lenders appear on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million before the crisis, he said.
“Weakness in the housing market has proved a serious drag on overall economic activity,” Bernanke said. “Steps that stabilize the housing market will help stabilize the economy as well.”
The fallout is forcing consumers to hibernate, and retailers have suffered the consequences.
Costco Wholesale Corp., usually a strong performer, reported a bigger-than expected sales drop. And most mall-based chains and department stores, such as teen stalwart Abercrombie & Fitch Co., Kohl’s Corp. and Macy’s Inc., reported sales declines of more than 10%. One notable exception from the largely grim sales results: Wal-Mart Stores Inc. posted sales gains.
Overall, sales dropped 2.7% last month, according to one tally of retail activity, the Goldman Sachs-International Council of Shopping Centers index based on 37 stores. It was the worst showing since at least 1969, when the index began.
Consumer spending which includes retail sales accounts for about two-thirds of total economic activity. And job cuts, tanking investment portfolios and sinking home values have made American consumers wary of spending.
Fresh information on layoffs, released by the Labour Department, showed the number of new applications for unemployment benefits dipped to 509,000 last week. Even with the drop, though, the figure was still high and pointed to a deeply troubled employment climate.
The number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982.
With the economy sinking faster, companies are cutting more jobs. AT&T, the Dallas-based telecommunications giant, announced it will slash 12,000 jobs _ or about 4% of its work force. And DuPont of Wilmington, Delaware, said it will cut 2,500 positions.
On Wall Street, stocks tumbled amid growing anxiety about the November employment report. The Dow Jones industrial average lost 215 points, or 2.5%.
One of the hardest hit parts of the economy from the housing crisis is manufacturing. Orders placed with US factories dropped 5.1% in October, the most since July 2000, the Commerce Department reported on Thursday.
To revive the economy, the Fed is poised to lower its key interest rate now at 1% by as much as a half percentage point on 16 December.
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First Published: Fri, Dec 05 2008. 09 52 AM IST
More Topics: US | Financial Meltdown | Economy | Jobs | Unemployment |