- The Washington Times - Wednesday, February 18, 2009

UPDATED:

Wall Street closed fractionally mixed Wednesday as gloomy government reports showed a worsening economy and President Obama unveiled a complex $75 billion plan to help up to 9 million families avoid home foreclosures that the markets viewed to be short of a quick fix.

At the close, the Dow Jones Industrial Average rose 3.03, or 0.04 percent, to 7555.63. The tech-laden Nasdaq dropped 2.69, or 0.18 percent, to 1467.97. The broader Standard & Poor’s 500 dipped 0.75, or 0.10 percent, to 788.42.

Wall Street seesawed throughout the day and failed to be impressed with the housing plan, which eventually could total $275 billion.

The Dow at one point fell below its Nov. 20 post-meltdown low of 7,552.29. Bank, home-building and airline stocks were among the day’s biggest losers.

The Federal Reserve, in its latest economic outlook, predicted that an economic recovery would be “unusually gradual and prolonged.” The Fed also thinks that unemployment will increase this year from its current 7.6 percent to 8.5 percent or 8.8 percent and that the economy will contract between 0.5 percent and 1.3 percent.

The last full year in which the economy shrank was in recession-burdened 1991, and if the forecast is correct, it would be the worst showing since the recession year of 1982, when the decline registered 1.9 percent.

Of the housing rescue plan, Craig Peckham, equities trading strategist for Jefferies & Co., a New York investment bank, told The Washington Times: “It’s a step in the right direction. It’s a positive, but it falls short of a sweeping quick fix… . It’s hard to view this as a silver bullet.”

What the markets are looking for, he said, is a clear-cut signal “that the end is in sight of the economic contraction.”

For example, Mr. Peckham said, “there are still 10 million people out there who are facing the possibility of foreclosure, and that’s a perpetuation of the decline in asset values.”

In addition, he said, the markets have waffled throughout most of the day because there are “depressing statistics” from the government that, among other things, show a decline in industrial production, indicating that the country “is continuing to operate well below its potential.”

The Federal Reserve reported that factory, mine and utilities production fell 1.8 percent in January, the third consecutive month of such a decline, confirming that the recession is taking a deep bite. December’s production was worse than reported initially, falling 2.4 percent.

Factory production declined 2.5 percent, largely because of the shutdown of auto plants and their suppliers.

Capacity at all industrial facilities dropped to 72 percent last month, down from 73.3 percent in December and the lowest performance since February 1983, when the country was emerging from a recession.

At the same time, the Commerce Department reported that the construction of new homes and apartments declined a record 16.8 percent in January to a seasonably adjusted rate of 466,000 units. An agency spokeswoman said it marked the fewest starts since the agency began recording those statistics in 1959.

Economists had predicted there would be 530,000 housing starts last month. Applications for building permits, an indicator of future construction, fell 4.8 percent to an annual rate of 521,000, also below predictions.

The biggest decline in housing starts, 42.9 percent of the total, occurred in the Northeast, the Commerce Department said.

The burst in the housing bubble, begun with foreclosures on subprime mortgages, blossomed into a financial meltdown in September that caused the failure of one major financial institution, Lehman Bros., threatened the collapse of others and led to a $700 billion federal bailout rescue.

Investors seem anxious to learn the details of Mr. Obama’s housing plan after receiving only a vague outline eight days ago about how Treasury Secretary Timothy F. Geithner plans to help the severely troubled banking system.

On the job front, the news couldn’t be bleaker.

Goodyear Tire & Rubber Co., one of the biggest suppliers to the U.S. auto industry, announced plans to cut 5,000 jobs after it posted a $330 million loss and a 21 percent decline in sales during the final three months of last year. That hardly came as a surprise, considering the sorry state of the automakers.

The reductions total about 7 percent of the work force of the company, which is based in hard-pressed Akron, Ohio, and follows its dismissal of 4,000 workers last year.

The announcement came less than 24 hours after the General Motors Corp., not long ago the world’s biggest carmaker, served notice that it will let go another 47,000 workers as part of a restructuring plan that is intended to woo another $16.6 billion in bailout money from the federal government.

GM already has received $13.4 billion.

Chrysler LLC asked for another $5 billion, after receiving $4 billion last year, and said it planned to cut another 3,000 jobs. The private company already reduced its work force by 32,000 people last year.

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