The outlook for the economy isn't expected be any sunnier with the government's release of weekly jobless claims on Wednesday.
While the Labor Department's tally of initial jobless benefit claims for the week ending Dec. 27 is expected to drop, new claims are still stuck at elevated levels.
The data follow separate reports Tuesday confirming the grim economic view, showing consumer confidence and housing prices have plummeted to all-time lows.
Illustrating the depths of the recession, consumer confidence hit a more than 40-year low in December in the face of rising layoffs, while home prices in 10 major U.S. cities dropped in October by the sharpest amount in 21 years.
Consumers have been nervous about spending for months - putting off big-ticket purchases, forgoing new clothes and choosing store brands at the grocery store - all of which may make this the worst holiday season for retailers in decades.
The Consumer Confidence Index measured by the Conference Board, a private research group, fell to 38 in December from a revised 44.7 in November. That is its lowest point since the group began compiling the index in 1967, and below the previous low of 38.8 in October. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.
"Deepening job insecurity and falling asset prices are outweighing any optimism consumers may have derived from falling gas prices," said Dana Saporta, U.S. economist at investment bank Dresdner Kleinwort.
The jobless claims report, to be released Wednesday at 8:30 a.m. EST, is expected to show a drop to a seasonally adjusted level of 550,000, down from the previous week's 586,000, according to a survey of Wall Street economists by Thomson Reuters.
The 586,000 claims the department reported last week was the highest level for initial unemployment benefit claims since November 1982, when the economy was emerging from a steep recession.
The unemployment rate hit a 15-year high in November, and economists expect additional job losses in the first half of 2009. Those saying in the Conference Board survey that jobs are "hard to get" rose to 42 percent in December from 37.1 percent in November, when the unemployment rate stood at 6.7 percent.
Those claiming business conditions are "bad" increased to 46 percent in December from 40.6 percent in November. Consumer spending is likely to keep dropping well into next year, Saporta said, meaning the recession will last at least into the first half of 2009.
The conditions that began the recession persist, especially deflating home prices. The Standard & Poor's/Case-Shiller 20-city housing index fell by 18 percent from October 2007, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, the biggest decline in its 21-year history.
None of the 20 cities in the Case-Shiller index saw annual price gains in October - for the seventh consecutive month - and 14 of them posted record year-over-year declines. Three metro areas - Phoenix, Las Vegas and San Francisco - clocked in annual declines of more than 30 percent.
"The numbers are getting worse. And I think they will get quite a bit worse over the next two months because housing demand has plunged since the market went into turmoil," said Patrick Newport, an economist at IHS Global Insight.
The Federal Reserve said Tuesday it will begin purchasing up to $500 billion in mortgage-backed securities early next month in an effort to bolster the housing market. The Fed first announced that it would purchase the securities in late November but did not say when they would begin. The central bank will buy securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
Consumers have been whipsawed by home prices, the deteriorating job market and shrinking nest eggs. According to preliminary data from SpendingPulse, which tracks purchases paid for by credit cards, checks or cash, retail sales fell between 5.5 and 8 percent during the holiday season compared with last year. Excluding auto and gas sales, they fell 2 to 4 percent.
"This year is the roughest year we've had," said 35-year-old Anah Meeks, who was at Crabtree Valley Mall in north Raleigh, N.C., before Christmas mainly to get a picture of her 8-month-old son sitting on Santa's lap. "We were wondering how we were going to do it."
Meeks, who moved from Michigan in November after losing her job at a McDonald's Corp. restaurant, said she was buying her two older daughters one main present for the holidays and a few smaller items.
Major retailers are expected to report sharply lower sales than last year when they release those figures Jan. 8. Analysts expect a rash of store closings and bankruptcies from both retailers and their suppliers.
A number of stores didn't even make it to Christmas. Circuit City Stores Inc. filed for bankruptcy protection last month. It plans to keep operating, but toy seller KB Toys, which filed for bankruptcy earlier this month, is liquidating its stores and will shut down.
With credit tight and even steep discounts failing to spur spending from tapped-out consumers, economists are looking to government spending to restart the economy. Aides to President-elect Barack Obama are discussing a new stimulus package that could be as large as $775 billion.
Stocks rose despite the reading, taking heart after General Motors Corp.'s troubled financing arm received $5 billion of financing. The Dow Jones industrial average rose 184.46 to 8,668.39, while broader indexes also gained. The stock market has seen its worst year since Herbert Hoover was president, with the Dow down roughly 36 percent.
The Conference Board's Present Situation index, which measures how respondents feel about current business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.
The current recession has deepened as companies have slashed jobs, curbed production and hoarded cash in the face of declining demand and frozen credit markets.
In 3M Co.'s quarterly update this month, Chairman and CEO George Buckley talked about how the company had closed 16 plants over the last year and a half, has been drawing down inventory and cutting capital spending.
"Is this healthy?" he said on the call. "All of us acknowledge we're collectively making the situation worse, but I think the first responsibility we have as leaders of companies is to make sure that we ensure the health and survival of our own companies first, not necessarily other people's companies, or, for that matter, the whole U.S. economy."
The Conference Board survey is based on a representative sample of 5,000 U.S. households. The cutoff date for December's preliminary results was Dec. 22.
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