Tough Day for the Economy: Retail Sales and the Dollar Plunge While Oil Prices Surge Anew
WASHINGTON (AP) -- Oil hit a record high, the dollar sank again,
and consumers stopped buying pretty much everything.
Stocks kept gyrating, too, on Thursday, swinging between gloomy
recession evidence and rising hopes that all the bad news would
bring another aggressive cut in interest rates when the Federal
Reserve meets next week.
The Bush administration, conceding the economy was facing "difficult"
times now, rushed out new proposals aimed at next time -- plans
to fix various problems that have led to a severe crisis in credit
markets.
Administration officials predicted an economic rebound once the
impact of the Fed's credit cuts and the recently passed economic
stimulus package begin to be felt.
Private analysts were not as confident, worrying that the economy
is being hit by multiple blows and noting that some of the problems,
such as plunging home sales and mortgage defaults, are showing
no signs of abating.
"We're in the belly of the recession beast right now and
all we really can do is take defensive action," said Bernard
Baumohl, managing director of the Economic Outlook Group.
The Commerce Department reported that consumers, battered by
falling home values, job losses, soaring energy costs and a severe
credit squeeze, stopped going to the malls in February, triggering
a 0.6 percent drop in retail sales.
That was the second big drop in retail sales in the past three
months, a pattern consistent with the onset of a recession. Sales
were down across a broad swath of the economy, from autos and
furniture to appliances.
Consumer spending accounts for two-thirds of total economic activity,
and many economists believe the country is in recession or soon
will be.
At the White House, deputy press secretary Tony Fratto said the
Bush administration expected a "difficult and challenging"
period. But he also said Americans should have confidence in the
long-term future of the economy because of the positive impact
of the Fed's rate cuts and the economic stimulus package that
will send rebate checks to 130 million households starting in
May.
Bush is headed to New York on Friday to deliver a speech on the
economy.
"I think it's important for the president to get out and
talk about how he sees the economy, and why he sees the economy
improving as the year goes on," Fratto said. But he conceded
that surging energy prices were acting as a drag and "higher
oil prices and higher gasoline prices are not going to go away
overnight."
Indeed, both crude oil and gasoline prices hit all-time highs
on Thursday with crude closing at $110.33 per barrel on the New
York Mercantile Exchange. Gasoline prices jumped 2.1 cents a gallon
overnight to a national average of $3.267 a gallon, according
to AAA and the Oil Price Information Service. Analysts forecast
that gasoline prices will keep climbing.
The dollar, meanwhile, dropped anew as global investors worried
about the length and severity of any U.S. downturn. The dollar
dipped briefly below 100 yen for the first time in 12 years and
fell to a new low against the euro.
On Wall Street, stocks slid but then rebounded somewhat as traders
grew hopeful about a Fed rate cut next Tuesday of one-half point
to as much as three-fourths of a point. Investors' moods were
also bolstered after Standard & Poor's predicted that financial
companies are nearing the end of the massive write-downs in the
value of subprime mortgages and other assets.
The rating agency estimated that writedowns of subprime asset-backed
securities could reach $285 billion globally, up from a previous
projection of $265 billion. However, it said that "the end
of write-downs is now in sight for large financial institutions."
The worst of the U.S. slowdown has been the housing sector, which
has been in a two-year slump that has seen sales and prices plunge
in many formerly hot real estate markets. Those declines have
shaken consumer confidence and triggered rising mortgage defaults.
Homeowners could no longer count on rising prices to build equity
in their homes that would allow them to refinance into more affordable
loans.
The president's Working Group on Financial Markets, led by Treasury
Secretary Henry Paulson, put forward a broad blueprint of changes
on Thursday. The proposals were aimed at correcting a variety
of abuses from mortgage brokers who pushed prospective buyers
into loans they could not afford, Wall Street investment firms
that aggressively packaged the mortgages in securities, and credit
rating agencies that failed to assess the risks those securities
carried.
While the recommendations could help prevent a repeat of the
current crisis, critics said the administration still needed to
go much further to stave off an expected tidal wave of foreclosures
in coming months.
Nearly 60 percent more U.S. homes faced foreclosure in February
than in the same month a year ago, according to a report Thursday
from California-based RealtyTrac Inc. Nevada, California and Florida
registered the highest foreclosure rates. |
