Grisly Economic News Sales Of U.S. Existing Picked Up Pace - Dec 24, 2008

Tuesday - Another day of grisly economic news where sales of U.S. existing homes fell by a record amount last month as the recession picked up pace. The U.S. recession began last December has groomed further as the data from the Commerce Department confirmed that output shrank at an annual rate of 0.5% in the third quarter as consumption and investment slumped. Looking ahead, the fourth quarter and first quarter of 2009 are likely to be the weakest in the current downturn.

The shutdown of production at Chrysler, GM, and Ford has increased the risk of a weaker-than-expected drop in GDP in the first quarter. Weak business conditions should translate into a further moderation of prices. The Richmond Federal Reserve Bank's manufacturing survey echoed the gloomy message in other data, falling to -55 in December from -38 the previous month. A services sector survey declined 8 points to -30.

Housing is at the heart of the problem. Existing home sales plunged a record 8.6% in November to a 4.49 million-unit annual rate, while a separate new home sales report showed they retreated at a slower 2.9% pace. The median existing home price fell 13.2% on an annual basis, down for a fifth straight month, to $181,300. It was the largest drop since the current data series began in 1968 and probably the largest since the Great Depression, said Lawrence Yun, the chief economist for the National Association of Realtors.

However, the alone good news came from the Reuters/University of Michigan Surveys of Consumers, which rose to 60.1 in December from November's reading of 55.3 due to lower energy and retail prices after stores made radical markdowns to tempt shoppers.

On the political front, U.S. President-elect Barack Obama is expected to unleash a massive government spending program when he takes office next month to reinforce the powerful policy boost from the Fed, which has also pumped over $1 trillion into credit markets. Vice President-elect Joe Biden said the incoming administration was "getting awfully close" to cementing a deal with congressional Democrats on the package, which aims to create 3 million new jobs and could cost $775 billion or more.

Stocks tumbled on Wall Street as the gloomy outlook weighed on pre-holiday spirits, with the Dow Jones Industrial Average shedding 100 points, or 1.2%, to 8,419. The Nasdaq closed lower by 11 points at 1,521.35 and the S&P 500 closed lower by 8.5 points at 863.

On the other side of the North Atlantic, stock markets closed almost unchanged in the last full trading session in a holiday-shortened week, with defensive food producers and utility firms putting in a strong performance. On a national level, the U.K. FTSE 100 index closed up 0.2% to 4,255.98, the German DAX 30 index fell 0.2% to 4,629.38 and the French CAC-40 index lost 0.7% to 3,128.41. On the economic front, Britain edged closer to recession in the third quarter of this year, with the economy contracting by more than previously thought and at its sharpest rate since the early 1990s. gross domestic product shrank by 0.6% in the three months to September.

Coming to Asian Markets, which dropped on Wednesday, with auto, and tire makers subjected to some harsh treatment after they cut their sales and earnings forecasts earlier in the week. The Nikkei 225 Average ended the morning trading session down 2.7% at 8,488.95, while Australia's S&P/ASX 200 index rose 0.7% to 3,555.30, and New Zealand's NZX 50 index added 0.4% to 2,672.91.