WASHINGTON - Inflation at the wholesale level soared in January by the fastest pace in 16 years, pushed higher by rising costs for food, energy and medicine.
The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting.
The worse-than-expected performance was certain to capture attention at the Federal Reserve, which has chosen to combat a threatened recession by aggressively cutting interest rates in the belief that weaker economic growth will keep a lid on prices.
But the combination of rising inflation and weaker growth raises the threat of “stagflation,” the economic malady that plagued the country through the 1970s, when a series of oil shocks left households battered by the twin problems of stagnant growth and rising prices.
The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. That gain had been driven by sharply higher energy costs.
With the January jump, wholesale prices have risen over the past 12 months by 7.5 percent, the fastest increase since the fall of 1981, when the country was in a deep recession.
I've been looking at the recent economic and political events taking place during the Bush administration, and have been comparing them to Lyndon Johnson's administration. There are disturbing similarities here--both sent the U.S. into an undeclared war, both refused to pay for the war with high taxes, and both embarked on large government spending programs--Johnson with his Great Society program, Bush with his tax cuts to the rich. Both presidents Johnson and Bush wanted to have their 'guns and butter' cake, and eat it too. And just as we have seen the beginnings of stagflation in the U.S. just after the end of the Vietnam War, we are seeing the beginning of another era of stagflation in the U.S. as we are still stuck in the quagmire of Iraq. This is scary.
Key home price index shows record decline: This MSNBC story shows that the housing mess is still not going away;
NEW YORK - The collapse in home prices accelerated to a record pace in the fourth quarter of 2007, with prices plunging 8.9 percent last year, according to a national home price index released on Tuesday.
The quarterly drop in prices of existing single-family homes quickened to 5.4 percent in the final three months of last year from a 1.8 percent drop in the third quarter, according to the S&P/Case-Shiller U.S. National Home Price Index, Standard & Poor’s said in a statement.
The 8.9 percent year-over-year decline was the largest in the 20-year history of the index, as housing was pressured lower by a huge supply of homes for sale, rising foreclosures and tighter lending conditions.
By comparison, during the 1990-91 housing recession the annual rate bottomed at a 2.8 percent drop.
Nobody has any money to buy houses. Even as the Feds drop interest rates, banks are not opening up their credit checkbooks for home loans unless you have Triple-A-plus-Gold-Standard credit. The banks still have almost a year's supply of houses, due to foreclosures, that are on the market that they still can't sell to recoup their own losses due to the subprime mortgage mess. And homeowners can't sell their homes at a higher price because of the glut of homes that are still on the market. Oh, and let us not forget that we still have plenty of homeowners who will be facing even higher interest rates when their adjustable-rate mortgages kick in. Is it no wonder that home prices continue to drop?
Foreclosures up 57 percent in the past year: There really isn't much more I can say about this MSNBC story;
LOS ANGELES - The number of homes facing foreclosure jumped 57 percent in January compared to a year ago, with lenders increasingly forced to take possession of homes they couldn’t unload at auctions, a mortgage research firm said Monday.
Nationwide, some 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the total involved first-time default notices.
The worsening situation came despite ongoing efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions.
“You have more people going into default and a higher percentage of the properties going back to the banks,” said Rick Sharga, RealtyTrac’s vice president of marketing.
Banks are getting stuck with adding even more foreclosed homes to the ones they have on their books. And what is worst, with home sale prices dropping, the value of the homes that banks have are now less than the value of the loans the banks made for those same homes. In other words, the banks can not sell these homes to recoup the losses of their mortgage loans. According to the MSNBC News story;
RealtyTrac follows default notices, auction sale notices and bank repossessions. Lenders typically consider borrowers delinquent after they fall three months behind on mortgage payments.
Attempts to help struggling home owners have fallen short.
“The loan workout modification programs aren’t having a significant material effect on keeping properties from going back to the banks,” Sharga said.
One dramatic trend last month was a 90 percent spike in the number of properties that were repossessed by banks, compared to January 2007.
“It suggests that there’s little or no equity in a lot of these homes, because they’re not even being sold to investors at auctions, and it suggests a continuing weakness in a lot of markets in terms of real estate sales,” Sharga said.
The banks can't even sell these homes to investors at auctions. We are probably going to see even more losses and write-downs being posted by banks and financial institutions over the course of this year.
Consumer confidence weakens significantly: With all this bad economic news, is it no wonder that consumers are losing confidence? From MSNBC News;
NEW YORK - Consumer confidence plunged in February as Americans worried about less-favorable business conditions and job prospects, a business-backed research group said Tuesday.
The Conference Board said its Consumer Confidence Index fell to 75.0 this month from a revised 87.3 in January.
The reading was the lowest since the index registered 64.8 in February 2003, just before the U.S. invaded Iraq, researchers said, and was far below the 83.0 expected by analysts surveyed by Thomson/IFR.
[....]
The expectations index, which measures consumers’ outlook over the next six months, fared even worse. The expectations index dropped to 57.9 from 69.3 in January. The February figure was a 17-year low, the Conference Board said, standing just a bit above the 55.3 of January 1991.
I think I need a shower now.
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