Job seekers wait on line stretching around a block to attend the Monster.com and National Career Fairs job fair in New York, Wednesday May 28 , 2008. The nation's unemployment rate jumped to 5.5 percent in May, the biggest monthly rise since 1986, as nervous employers cut 49,000 jobs. (AP Photo/Bebeto Matthews)
Several reports due Wednesday are expected to provide more evidence that consumers are cutting back on spending and companies are eliminating jobs in the face of a deepening recession.
The new figures will come a day after the government said the gross domestic product, the broadest measure of the economy, shrank at a 0.5 percent annual rate in the third quarter. Many economists expect the GDP to shrink by much more in the current quarter.
Wall Street economists forecast that a report on consumer spending in November, to be released by the Commerce Department on Wednesday, will show a drop of 0.7 percent. That would be the fifth straight month of decline.
Meanwhile, the Labor Department's tally of initial applications for unemployment benefits last week is expected to rise slightly to a seasonally adjusted 560,000 from 554,000 in the previous week.
And the Commerce Department is expected to report that durable goods orders fell by 3 percent in November, after a 6.2 percent drop in October. October's decline was the largest fall in two years.
Two reports on home sales Tuesday also sketched a bleak picture. Demand for both new and existing homes fell more sharply in November than expected.
Many economists project that the GDP could plunge as much as 6 percent in the fourth quarter, which would be the sharpest such decline since a 6.4 percent drop in the first quarter of 1982.
"It will get a lot worse before it gets better," said Nariman Behravesh, chief economist at IHS Global Insight, a Lexington, Mass., forecasting firm. "We are in the midst of the worst recession in the postwar period, even factoring in a massive stimulus program."
Economists said they saw no likelihood of a quick turnaround in housing or the overall economy, given that the credit markets remain locked despite a $700 billion financial rescue package and billions of dollars of loans supplied by the Federal Reserve. Mortgage financing has dried up for many potential buyers, further damaging a housing industry struggling with a tide of foreclosures.
Wall Street pulled back in quiet trading ahead of the holiday after the reports were released Tuesday morning. The Dow Jones industrial average finished lower for the fifth straight day, falling 100 points to close about 8,419.
The market has been ravaged by the ongoing financial crisis and, most recently, the scandal over the alleged $50 billion fraud by fund manager Bernard Madoff. Investor confidence has been shredded but embattled Securities and Exchange Commission Chairman Christopher Cox said in an interview with the Washington Post that his agency has provided a steady regulatory hand in a time of crisis.
"What we have done in this current turmoil is stay calm, which has been our greatest contribution - not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants," Cox said in the interview posted on the newspaper's Web site late Tuesday.
In a bid to revive the economy, President-elect Barack Obama's administration is assembling a stimulus package that could reach $850 billion for spending on infrastructure such as roads and bridges, aid to states, modernizing schools and energy project.
Behravesh said he thinks the recession will bottom out this quarter with the biggest quarterly drop yet in GDP. But he forecast another sizable decline of around 4 percent in the first three months of 2009, and then a slightly smaller drop in the second quarter before the economy begins to rebound next summer.
Other economists are even more pessimistic. Joshua Shapiro, chief U.S. economist at MFR Inc., said he did not see the GDP turning positive until 2010. "There were just so many excesses that the correction process is going to take a long time," he said.
The current recession began in December 2007. That means it's already the longest downturn since the 16-month recession of 1981-82. That downturn and another 16-month slump in 1973-75 are tied as the longest recessions since World War II.
Commerce reported Tuesday that GDP fell at an annual rate of 0.5 percent in the third quarter, which was unchanged from the estimate the government made a month ago. But their report showed that corporate profits fell 1.2 percent during the quarter, the fifth straight quarterly drop and even worse than the 0.9 percent decline estimated a month ago.
Separately, the Commerce Department said new home sales dropped 2.9 percent in November to an annual sales rate of 407,000 units, the slowest pace in nearly 18 years. And the National Association of Realtors said sales of previously owned homes fell by 8.6 percent to an annual rate of 4.49 million units.
The 0.5 percent drop in GDP in the third quarter followed a 2.8 percent increase in the spring, a period that was boosted by the distribution of millions of economic stimulus payments. GDP was up 0.9 percent in the first quarter after having dropped by 0.2 percent in the fourth quarter of 2007.
The National Bureau of Economic Research has determined that the country slipped into a recession in December 2007.
While a common rule of thumb for a recession is two consecutive quarters of falling GDP, the NBER uses other data to determine when recessions begin and end, including employment statistics. The economy has lost jobs every month since January. It's shed 1.9 million payroll jobs this year, including more than a half-million jobs lost just in November. The unemployment rate now stands at a 15-year high of 6.7 percent.
The Treasury Department, meantime, said it has provided an additional $4.7 billion to 92 banks as part of the government's $700 billion rescue of the financial system.