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TURBULENT 2008 ANTICIPATED
(Source: Madlen Read, Associated Press, 12/31/07)

NEW YORK - Wall Street ended a painful year with another steep loss Monday as investors glumly anticipated that 2008 would bring more of the uncertainty and turbulence of 2007.

The Dow Jones industrials fell 101 points, the latest in a string of triple-digit moves that became commonplace in the just-ended year amid a continuum of bad news about housing, faltering mortgages and shrinking credit. Thanks to a big first-half advance, they managed to finish 2007 with a respectable increase of 6.43 percent - not as large as the 16.29 percent jump in 2006, but a better performance than the modest loss in 2005.

The Dow's annual gain came even after it posted its worst fourth-quarter drop in 20 years, amid billion-dollar losses at the world's biggest financial firms and falling spending by consumers whose budgets have been crimped by record-high oil prices and declining home prices.

''Considering all that's going on, the market really acted pretty well,'' said Todd Leone, managing director of equity trading at Cowen & Co.

It's tough to say what the primary market driver of 2008 will be, but the stock market faces a slew of threats: more adjustable-rate mortgage resets, a still-tight credit market and the possibility of accelerating inflation. But Leone said the fourth-quarter earnings season in January should shed some light on how U.S. companies are surviving the recent slowdown and credit crunch.

Still, there were some slivers of optimism Monday. The U.K.'s Observer newspaper reported Sunday that Merrill Lynch & Co. was in talks over the weekend to line up capital from investors in China and the Middle East in exchange for portions of the Wall Street firm.

Merrill, like many other financial houses, has seen its portfolio lose billions of dollar in value due to misplaced bets on mortgages. And as Citigroup Inc., UBS AG, Morgan Stanley and Bear Stearns Cos. have done, it has turned to investors in Asia for much-needed capital - Merrill has already gotten $4.4 billion this month from a Singapore fund, which bought a 9.9 percent stake in the U.S. brokerage.

2007 was a remarkable year on Wall Street. The market began the year continuing the rally that propelled the Dow above 12,000 for the first time in October. Then, in late February, came a reminder that stocks were capable of turning tail and plunging - a skid on China's stock market and an ominous economic outlook from former Federal Reserve Chairman Alan Greenspan sent the Dow down 416 points in one day.

That panic didn't last long. In April, the Dow barreled above 13,000 for the first time and then glided past 14,000 in mid-July. But in late July, however, the market realized that the ongoing slump in housing, and a rise in mortgage foreclosures due to resetting adjustable-rate loans, was taking a toll across the credit markets.

Though the housing market started teetering as early as 2005, few people anticipated how much the downturn could affect the global financial system. Mortgages given to borrowers deemed ''subprime'' comprised only about an eighth of the $10 trillion U.S. mortgage market - why would that rattle the world markets?

The problem was, these pieces of debt were chopped up, repackaged and woven into larger fixed-income instruments, on which banks and other investors made billion-dollar bets - bets that were extremely profitable during the housing boom, but calamitous when borrowers couldn't keep up with their mortgage payments. When one slice of the instrument defaulted, it pulled the whole thing down with it.

Investors bailed out of anything tied to mortgages, and soon Wall Street discovered that financial institutions in the United States and overseas were holding billions of dollars in assets that were losing value by the day. The biggest names on the Street - Merrill Lynch, Citigroup Inc., Bear Stearns Cos. - announced billions of dollars in write-downs. Merrill and Citi lost their CEOs, and several financial firms sought out billion-dollar investments to clean up their balance sheets.

In the midst of this turmoil, the credit markets all but seized up, and all these interconnected events pummeled stocks. The Dow suffered triple-digit drops, recoveries and then drops again as Wall Street stumbled through months of volatility reminiscent of the terrible days after the 2001 terror attacks.

In August and September the Federal Reserve began to act, with interest rate cuts and injections of liquidity. It helped for a while, and in October, stocks were rallying again taking the Dow to another set of record highs - only to succumb again to fears about the unknown extent of the credit mess.

Wall Street enters 2008 with that same concern, not to mention oil's surge this year of about 60 percent to nearly $100 a barrel, and the U.S. dollar's tumble to record lows against the euro.

On Monday, the dollar rose against most other major currencies, gold prices fell, and crude oil prices slipped 2 cents to settle at $95.98 a barrel on the New York Mercantile Exchange.

DECLINE SUGGESTS OVERALL ECONOMY IS
WEAKENING FASTER THAN PREDICTED
(Source: Vinnee Tong, Associated Press, 1/2/08)

The U.S. manufacturing economy unexpectedly contracted in December, ending a streak of 10 consecutive months of growth and sinking to its lowest point in almost five years, a private research group said Wednesday. The decline suggests that the overall economy may be weakening faster than some economists predicted.

The figures are closely watched because a slowdown in factory production can translate to job cuts, which in turn reduces consumer spending - a major component of the economy.

The Institute for Supply Management, a Tempe, Ariz.-based private research group, said its manufacturing index registered 47.7 last month, down 3.1 percentage points from the 50.8 recorded in November. A reading above 50 indicates growth; below that level indicates contraction.

The December results were weaker than the 50.9 expected by analysts polled by Thomson/IFR Markets. Last month was the first that manufacturing has failed to grow since January 2007, when the index was 49.3. It has been four years and eight months since the index was lower than in December; it hit 46.4 in April 2003.

Meanwhile, the Commerce Department reported Wednesday that construction spending edged up slightly in November as the continued housing slump was offset by record spending on government and business projects. Spending was up 0.1 percent in November to a seasonally adjusted annual rate of $1.165 trillion. Spending had fallen by 0.4 percent in October.

Many economists believe the U.S. economy grew at an anemic rate of about 1.5 percent in the final quarter of the year and that it could slow to 0.5 percent or less in the first three months this year. A growing number expect a recession because of turmoil in the housing market and continuing tight credit conditions.

The chairman of ISM's manufacturing business survey committee, Norbert Ore, said he expected a couple of months of either contraction or very slow growth before a rebound. He said supply executives reported that slower demand was more of a problem than excess inventory. The survey found weakness in new orders and production, which reversed in December after reporting growth in November.

''It's a little too soon to say whether this is a trend of continued contraction or whether it's a soft patch, then things pick up after that,'' Ore said.

Nomura chief economist David Resler said December results can sometimes be skewed, so January will be closely watched to see whether the sector will keep falling.

''The troubling thing is not just that it was so low, and it is at a level that is typically breached only in recession, but that it's continuing in a downward trend,'' Resler said.

U.S. MAY BE STAVING OFF A RECESSION
(Source: Shobhana Chandra and Courtney Schlisserman, Bloomberg News, 1/2/08)

Reports on U.S. factory orders and the labor market Thursday portrayed an economy that is skirting recession as attention shifts to today's government figures on employment.

Demand for U.S. manufactured goods rose 1.5 percent in November, more than forecast and propelled by a surge at petroleum refiners, the Commerce Department said in Washington. Companies added 40,000 jobs last month, down from the previous month's 173,000 increase, ADP Employer Services said.

The figures did little to ease concern among investors that growth is cooling. Weaker job creation hurts spending by consumers already burdened by soaring energy costs and retreating home prices, economists said.

Thursday's reports ''are worrisome without being catastrophic,'' said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. ''We are seeing continuing labor market weakness, but it still doesn't appear to be completely rolling over.''

A Labor Department report Thursday showed initial jobless claims decreased to 336,000 last week from a two-year high of 357,000 the prior week. The total number of people collecting unemployment insurance rose for a fourth straight week, to the highest since October 2005.

''This is one piece of evidence that suggests maybe we can muddle through this period without going into recession,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Mass. Claims ''would have to go up to about 375,000-400,000 before the economy would be in real trouble.''

The Labor figures, based on payroll data, come before a report today that may show the economy created 70,000 jobs last month, less than in November, and the unemployment rate increased to 4.8 percent, according to economists and analysts.

''The slowdown in hiring is intensifying,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ''Growth has slowed, and it makes the economy more vulnerable to a potential recession.''

The 1.5 percent increase in factory orders was the biggest in four months and followed a revised 0.7 percent increase in October that was more than previously reported, the Commerce Department said. Excluding transportation, bookings rose 1.4 percent.

Economists forecast orders would rise 0.5 percent, matching the initial estimate for October, according to a Bloomberg survey.

LATE PAYMENTS ON LOANS HIGHEST SINCE '01
(Source: Jeannine Aversa, Associated Press, 1/3/08

WASHINGTON - Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.

The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide.

Late payments on credit cards, meanwhile, dipped during the summer.

The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.

The association's quarterly survey of consumer loans painted a mixed picture of how people are managing their debt. It suggested that some people feel more squeezed than others.

A severe housing slump and weaker home values have clobbered some homeowners - making it difficult, or even impossible for some to pay their monthly mortgages. Foreclosures surged to record highs and more homeowners fell behind on their payments during the third quarter of last year, the Mortgage Bankers Association reported last month.

A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Others got burned when low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

''Consumer loans directly related to the housing market were hit the hardest,'' said James Chessen, chief economist at the American Bankers Association. ''We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007, reflecting continued weakness in the housing sector.''

Late payments on home equity lines of credit jumped to 0.84 percent in the third quarter. That was up from 0.77 percent in the second quarter and was the highest since the final quarter of 1997. The delinquency rate on home-equity loans in the third quarter rose to 2.28 percent, a two-year high.

Meanwhile, the delinquency rate on ''indirect'' auto loans - which are arranged through dealerships - jumped in the third quarter to 2.86 percent, a 16-year high.

Asked why credit card late payments waned while delinquencies on other types of consumer loans waxed, Greg McBride, senior financial analyst for Bankrate.com, said: ''Credit cards have more payment flexibility than installment debt such as auto loans and home equity loans,'' McBride said. ''When times are tough, consumers can skate by on the minimum payment on the credit card, but the $500 car payment is still a $500 car payment.''

Given all the troubles in the housing and mortgage markets, some distressed homeowners may need their credit card more than ever, McBride said. ''The credit card is the line of credit that is going to put food on the table and pay for other day-to-day necessities,'' he said.

'R' WORD TRIPS UP ECONOMISTS
(Source: Bob Willis, Bloomberg News, 1/5/08)

The U.S. economy may be on the verge of - or already in - a recession, based on the increase in 2007's unemployment rate, according to a number of economists.

The jobless rate rose to 5 percent in December, the highest in two years. The figure was 0.6 percentage point higher than March's 4.4 percent, which was the lowest reading of the expansion that began at the end of 2001.

''Since 1949 the un- employment rate has never risen by this magnitude without the economy being in recession,'' John Ryding, chief U.S. economist at Bear Stearns Cos. in New York, said in a note to clients. ''We now put ourselves on recession watch.''

Before the start of the last contraction in March 2001, the unemployment rate rose just 0.4 percent point, according to Labor Department figures. The rate barely rose at all ahead of the 1990-91 downturn, one reason why economists consider it a so-called lagging signal.

The National Bureau of Economic Research, which determines when recessions begin and end, defines them as a ''significant'' decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes.

The increase in the jobless rate ''is disturbing indeed,'' Victor Zarnowitz, 88, a senior fellow at the New York-based Conference Board and a member of the NBER group that dates contractions, said in an interview. ''A lot of people would rule out that a recession is pending. I would not. It's too early to say and it's perhaps not very likely that it will come, but I would not rule it out.''

The reason other indicators, such as sales or payrolls, have yet to unequivocally signal a downturn is because the U.S. economy has undergone significant structural changes, said Allen Sinai, chief global economist for Decision Economics in New York.

The economy managed to eke out an 18,000 gain in payrolls last month, thanks in part, to increases in hiring by health care companies and restaurants, said Sinai.

An aging population with an increasing propensity to eat away from home suggests those two categories could continue to add jobs in coming months, preventing payrolls from sending the telltale recession message, he said.

''There is no doubt in my mind that we are into a recession-like economy,'' said Sinai in an interview. ''The technical definition of a recession may be out of date because the makeup of the economy has changed.''

Another key area that has yet to issue any alarms is consumer spending, which accounts for more than two-thirds of the economy. Spending figures in November were stronger than forecast even as gasoline hovered around $3 a gallon and property values slumped.

That leaves the onus on December retail sales figures, due from the Commerce Department on Jan. 15, to determine whether the American consumer will indeed falter.

''We are spooked by this week's data and very open to a much weaker economic scenario,'' Stephen Stanley, chief U.S. economist at RBS Greenwich Capital Markets in Greenwich, Conn., said in a note. A ''collapse'' in consumer spending last month would prompt him ''to carve up our forecasts for 2008 and start over with much weaker growth'' estimates, he said.

Friday's jobs report also showed more industries were cutting payrolls than increased hiring last month. The so-called diffusion index dropped below 50, signaling contraction, for the first time since September 2003.

''It's not a good situation,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

''It is certainly true that every time the unemployment rate has done what it did today, we are in a recession.'' Still, ''I don't want to forecast a recession,'' he said, ''I would prefer for the National Bureau of Economic Research to call it a recession.''

MODERN-DAY GOLD RUSH
(Source: Jackie Farwell, Associated Press, 1/8/08)

NEW YORK - It's the stuff of Western dramas where rugged men went looking for it in the mountains. It's the glittering metal used in fancy jewelry, the highest honors for sports and the bars tucked away in heavily secured safes. And these days, gold's appeal as a safe-haven investment has carried it to record prices.

Gold futures surged above $880 Tuesday to their highest level ever, not accounting for inflation, propelled higher by rising oil prices and a weak U.S. dollar. An ounce of gold for February delivery climbed as high as $884 on the New York Mercantile Exchange, topping by almost $10 its previous record of $875 set in 1980, and later settled at $880.30, up $18.30.

Market analysts who have watched gold's ascent weren't surprised gold had reached a new high.

''I'm telling my friends,'' said Ashraf Laidi, an analyst at CMC Markets. ''I've told them for the past three years to invest in gold.''

Still, when adjusted for inflation, gold remains far short of the jaw-dropping levels of 28 years ago. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.

Gold that cost $650 an ounce in January 2007 has soared during the past year on rising prices for oil and other commodities and also by the falling U.S. dollar. Those trends have increased the metal's appeal as a hedge against inflation; gold is also seen as a safe investment in times of political and economic uncertainty around the world.

Copper and nickel are off to the best start since at least 1980. Crude oil gained, after reaching a record $100 last week, and corn climbed to an 11-year high. The dollar fell on concern that a housing slump and turmoil in credit markets may force the Federal Reserve to cut interest rates. U.S. Treasuries and equities also declined.

Few signs have appeared of the frenzy that surrounded the metal's last record-setting foray, but today's jewelry prices do reflect the sharp run-up in precious-metals prices over the past few months. As Valentine's Day approaches, shoppers might not be so sweet on rising price tags, and choose to settle for a smaller or lighter pair of gold earrings.

Dealers in Manhattan's midtown Diamond District, however, said they have seen worse.

Michael Pacicco runs his family-founded Pacicco & Pacicco Inc. from a windowless, second-floor shop on West 47th Street, its display cases filled with custom-made gold pieces, such as crosses and bracelets.

A few hours after gold topped at $879.40 an ounce, he said a rush to sell gold jewelry in the Diamond District was ''nonexistent'' - compared with the long lines of people winding around the block to Fifth Avenue hawking their jewels in 1980, when gold hit $875 an ounce. Some even brought their gold fillings.

''I don't think people have as much gold now as they did then,'' he said, explaining that when the precious metal sold for $100 or $200 per ounce, it was easier to buy a bracelet or a ring than in recent times, with the economy heading for a crunch.

CONSUMER CONFIDENCE HITS AN ALL-TIME LOW
(Source: Associated Press, 1/11/08)

WASHINGTON - Consumer confidence fell to an all-time low as worries about jobs, energy bills and home foreclosures darkened people's feelings about the country's economic health and their own financial well- being.

According to the RBC Cash Index, confidence tumbled to a mark of 56.3 in early January. That compares with a reading of 65.9 in December - and a benchmark of 100 - and was the worst since the index began in 2002.

''People are anxious because everything sounds pretty awful these days,'' said Bill Cheney, chief economist at John Hancock Financial Services Group.

Economists cited several factors for consumers' gloomy outlook:

* Hiring practically stalled in December, pushing the unemployment rate to 5 percent, a two-year high, the government reported last week.

* The meltdown in the housing market has dragged down home values and made people feel less wealthy.

* Harder-to-get credit has made it difficult for some to make big-ticket purchases.

* High energy prices are squeezing wallets and pocketbooks.

* There has been much hand-wringing on Wall Street and Main Street as to whether all these problems will plunge the country into recession.

''Consumers are gloomy. The confidence reading suggests that people believe bad times are upon us,'' said Richard Yamarone, economist at Argus Research.

Over the past year, consumer confidence has eroded sharply as housing and credit woes took their toll. Last January, confidence stood at a solid 95.3. The index is based on the results of the international polling firm Ipsos.

The White House is exploring a rescue plan, possibly including a tax cut, to aid the ailing economy. Federal Reserve Chairman Ben Bernanke, criticized for not doing enough, pledged Thursday to keep lowering interest rates. They are expected to drop by as much as one-half of a percentage point when central bank policymakers meet later this month.

The public is giving President Bush low marks for his economic stewardship. His approval rating on the economy dipped slightly to 33 percent in January, from 36 percent in December, according to a separate Associated Press-Ipsos poll. His overall job-approval rating was 34 percent, compared with 36 percent last month.

Individuals' sentiments about the economy and their own financial fortunes over the next six months actually fell into negative territory in early January. This gauge came in at a negative 8.2 percent. That was the weakest showing since right after the Gulf Coast hurricanes in August 2005.

Another measure looking at current economic conditions dropped to 78.9 in January. That was the lowest reading since early March 2003, when U.S. troops invaded Iraq.

Oil prices recently surged past $100 a barrel, though the price has moderated somewhat. Gasoline has topped $3 a gallon. Those high energy costs for fueling cars and heating homes are leaving people with less money to spend elsewhere, analysts say.

BUILDERS SLAM ON BRAKES
(Source: Lesley Mitchell, Salt Lake Tribune, 1/18/08)

It started out on a good note, but 2007 ended up as one of the worst years ever for home building along the Wasatch Front.

Builders took out permits for the construction of 9,877 single-family homes along the Wasatch Front last year, the lowest level since 1993, according to Construction Monitor, which tracks building activity throughout the West.

And the nearly 36 percent drop in permitting activity from 2006-2007 is one of the Wasatch Front's worst yearly drops ever - it tops any percentage loss since 1990, when the service began tracking permitting activity in the state.

The drop is especially steep when the state's population is taken into account. In 1990, the state's count was 1.7 million people; today the total is estimated at nearly 2.7 million.

Nationally, the Commerce Department reported Thursday that construction began on 1.35 million new homes and apartments last year, down 24.8 percent from 2006. Unlike Utah, where the slowdown began in earnest just eight months ago, many other housing markets already have been in a downturn for a year or more.

The national drop, the largest in 27 years, was also the second biggest annual decline ever. The largest decline was a 26 percent drop in 1980, when high interest rates across the country made it difficult for many to buy homes.

''I think this housing downturn will be unprecedented in terms of its breadth across the country and in its severity,'' said Mark Zandi, chief economist at Moody's Economy.com. ''I don't think we have seen anything like this, certainly since the Great Depression, and back then housing was much less of a factor in terms of the overall economy because fewer people owned their own homes.''

One major culprit for the bad home-building year are the tighter lending standards put in place last year after the nation's subprime lending debacle, in which substantial numbers of borrowers with poor credit got home loans that ultimately ended up in foreclosure. Another culprit is the cumulative effect of years of house-price increases that have put homeownership out of reach of more families, including those in Utah.

"It's really affected the [demand for the] $350,000 to $800,000 price range," said Jordan Bangerter, president of the Salt Lake Home Builders Association. "There just aren't that many people that can afford that type of house payment now."

Bangerter said he doesn't believe that the Wasatch Front is as overbuilt as the Phoenix or Las Vegas metro areas, which have been hit hard by the downturn and have seen their economies suffer as a result. And, he says, the state's strong population growth should help absorb some of the excess inventory of new homes for sale that now exists.

Still, he said, challenges for his industry in Utah loom.

"Our industry is trying to adjust to meet demand for less expensive housing," he said. That's a difficult challenge, he said, given that the public - and cities - prefer bigger and bigger homes.

The residential downturn has yet to create a huge drag on Utah's economy as it has done in other states, said Mark Knold, chief economist for the Utah Department of Workforce Services. But it is clearly helping slow job growth.

The state created 44,800 jobs in the year that ended in December, for an employment growth rate of 3.6 percent, Workforce Services said. That's down from 3.9 percent in the year that ended in November and from 4.5 percent in the year that ended in August.

Knold said about 2,200 people in construction industry in the state filed for unemployment benefits in December 2007 up from only 1,300 in December 2006.

"That's a pretty big jump in unemployment claims related to the construction industry," he said.

With home building in recent months plummeting to nearly two decade-lows, several home builders have laid off administrative workers in recent months, and subcontractors that two years ago were busy pouring concrete, framing, putting in electrical and plumbing systems and roofing have as well.

The good news is that construction job growth in Utah is up 7.4 percent in the year that ended in December, because of a surge in commercial construction projects.

Knold said there has been, however, some spillover into other industries. A number of mortgage companies, for example, have shed some workers in recent months.

"You have to think if we're not selling as many houses, we're not going to need as many mortgage people, title or real estate people," Knold said.

--- * The Associated Press contributed to this report.

FED TAKES SURPRISE RATE CUT
(Source: Terence Hunt, Associated Press, 1/22/08)

WASHINGTON - Jolted by global recession fears, the Federal Reserve unexpectedly slashed interest rates Tuesday, and President Bush and leaders of Congress joined in a rare show of cooperation in promising urgent action to pump up the economy with upward of $150 billion in tax cuts and government spending.

Market meltdowns overnight around the globe and growing anxiety at home stirred lawmakers and the administration toward swift action, possibly within a few weeks. Wall Street plummeted as the day began, following Asian stocks, then warily eased its sell-off after the Fed ordered the biggest cut on record in a key interest rate. The Dow Jones industrials, down 465 points at one point, closed the day down 128.

The Fed, announcing its action after an emergency video conference Monday night, indicated further rate reductions were likely, aimed at encouraging people and companies to start spending again.

''The urgency that we feel at home is now even more urgent as we see the impact of our markets on others,'' House Speaker Nancy Pelosi said after both Democratic and Republican lawmakers met with Bush at the White House.

Senate Majority Leader Harry Reid said the goal was to get a deal through Congress and on Bush's desk within roughly three weeks - lightning speed compared with the usual snail's pace on Capitol Hill.

Bush expressed confidence that he and the Democratic-led Congress could put aside bitter differences that have marked his presidency.

''I believe we can find common ground to get something done . . . to make sure that this uncertainty doesn't translate into more economic woes for our workers and small business people,'' Bush said in the Cabinet Room.

The White House meeting was intended to show the world that Bush and his Democratic adversaries recognize the gravity of the economic slowdown and are serious about protecting consumers and investors who have watched their holdings shrink. Wall Street and global markets fear the stimulus package outlined by Bush is not enough to avert a recession. The Dow Jones industrial average is down nearly 10 percent since the beginning of the year - its worst first 14 trading days ever.

Administration officials are focusing on rebates of $800 to $1,600 for individuals and couples and so-called bonus depreciation to allow companies to deduct 50 percent of business investments made this year. Democrats say the package also should include boosts in unemployment benefits, food stamp payments and the Medicaid health care program for the poor and disabled.

Many analysts say the United States already has tumbled into a recession - a notion rejected by the White House.

The Fed's rate cut caught Washington by surprise. Federal Reserve Chairman Ben Bernanke and his colleagues approved the cut Monday night after global markets were slammed by rising concerns that weakness in the world's largest economy was spreading worldwide.

The reduction in the federal funds rate from 4.25 percent to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990. It marked the first time the Fed has changed rates between meetings since 2001, when the central bank was battling the combined impacts of a recession and the terrorist attacks.

Commercial banks responded by announcing similar cuts of three-quarter of a percent in their prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

SALES OF EXISTING SINGLE-FAMILY HOMES DROP
IN 2007 BY LARGEST AMOUNT IN 25 YEARS
(Source: Associated Press, 1/24/08)

WASHINGTON - Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades.

The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.

For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.

The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.
There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.

LATEST DATA SHOW ECONOMY GREW AT HALF THE EXPECTED RATE
(Source: Kevin G. Hall, McClatchy News Service, 1/30/08)

WASHINGTON - The U.S. economic slump took center stage Wednesday as new data revealed an economy teetering on recession, the Federal Reserve shaved another whopping half-point off interest rates and the Senate began working on a stimulus plan of its own to jolt consumer and business spending.

The Federal Reserve reduced its benchmark federal funds rate - the overnight rate that banks charge each other - to 3 percent on Wednesday afternoon. Commercial banks mirrored the Fed's move, lowering their prime rate - what they charge their best borrowers - to 6 percent. The Fed also made a half-point cut to the rate it charges banks for emergency borrowing.

In just eight days, the central bank has chopped its benchmark rate by 1.25 percentage points, emphasizing its concerns that the U.S. economy is going into a near stall.

This view was underscored by Commerce Department data released hours before the rate cut, which showed that the U.S. economy grew by a subpar 2.2 percent in 2007 and a tepid 0.6 percent in the last quarter of the year.

That number was roughly half the growth rate that most mainstream economists had anticipated. It confirmed that the U.S. economy had little tailwind behind it going into what's been a volatile start to 2008.
''Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,'' the Fed said its statement.

''Moreover, recent information indicates a deepening of the housing contraction, as well as some softening in labor markets," the Fed said.

The statement left open the possibility of more rate reductions in the months ahead.

Stocks rallied after the announcement, but by the close of trading the Dow Jones Industrial Average finished down 37.47 points, while the S&P 500 was off 6.49 points. The tech-heavy Nasdaq closed down 9.06 points.

When the Fed began lowering rates last September, its benchmark rate was 5.25 percent and the prime rate was 8.25 percent.

Usually, lower rates make it cheaper to take out a car loan, pay off credit card debt or buy inventory for a small business. But turbulent credit markets and a deep slump in the housing sector may mute some of the benefits of all the rate reductions, whose effects in any case won't be felt across the broader economy for months. Banks and other lenders have become reluctant to lend to anyone but borrowers with strong credit histories.

Commerce Department economic-growth data released Wednesday illustrated how much housing is hurting the broader economy. Investment in residential housing fell by the largest quarterly amount since 1981, and that's dampening the Fed's efforts to jumpstart the economy.

Speaking in Washington to a real estate group Wednesday, Treasury Secretary Henry Paulson warned that a housing rebound appears unlikely anytime soon.

President Bush and Congress are rushing to put together an economic stimulus plan, hoping that the combination of tax rebates for consumers and tax breaks for businesses will spur consumer spending, which drives two-thirds of U.S. economic activity.

The $150 billion stimulus measure passed the House of Representatives on Tuesday, but the Senate began modifying the plan Wednesday, risking conflict with the House and a potential presidential veto.

Bush used a visit to a helicopter-manufacturing plant in Torrance, Calif., to warn senators that ''if you're truly interested in dealing with the slowdown in the economy, the Senate ought to accept the House package, pass it and get it to my desk as soon as possible.''