Key Economic Indicators Suggest a Deep Recession

Businesses cut prices at a record rate last month, builders started fewer new homes than anytime on record, and last week more people filed for new unemployment benefits than in any week since 1992, according to government data, as the outlook for the economy continues to dim.

The Labor Department announced this morning that new applications for jobless benefits rose to a seasonally adjusted 542,000 last week. It also revised the figure from the previous week down to 515,000.

That follows announcements yesterday that new-home starts in October were the lowest since at least 1959, when the government began keeping data. The consumer price index plummeted by the most since that series of monthly data was started in 1947, as the economy slowed so abruptly that companies had to slash prices to sell products.

And Federal Reserve leaders released projections indicating they expect the economy to worsen significantly in the coming year. The most pessimistic of 17 Fed officials expects joblessness to rise to 8 percent at the end of 2009, which would be the highest in a quarter-century.

"We're in the deep portion of the economic trough," said Richard Yamarone, chief economist of Argus Research, explaining yesterday's market sell-off. "So you have to expect a certain degree of negative sentiment, you almost have to expect doom and gloom at this point."

The White House announced this morning that in response to the worsening economy, President Bush would sign a bill extending unemployment benefits if passed by Congress.

"The recent financial and credit crisis has slowed the economy, and it's having an impact on job creation," White House spokeswoman Dana Perino in a statement e-mailed to reporters. "The President is always concerned when anybody loses their job and wants to ensure that anybody who wants to work can find employment.

"Because of the tight job market, the President believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in Congress."

Yesterday's news helped drive the Dow Jones industrial average down another 5 percent. Overseas markets followed suit today, and the U.S. markets opened in negative territory.

The consumer price index, a broad measure of inflation facing U.S. households, fell 1 percent in October, driven by an 8.6 percent decline in the price of energy. But the falling prices were considerably broader than that; excluding food and energy, which are volatile, prices fell 0.1 percent, the first monthly decline in that "core" price index since 1982.

Clothing prices fell 1 percent, for example, and the price of used cars and trucks was off 2.4 percent. More broadly, economists said, businesses are losing any ability to set prices because demand for their goods has dried up.

"It's not simply that they don't have pricing power," said Joel Naroff, president of Naroff Economic Advisors. "It's that they can't sell what they have. If you have any inventory, you have to make sure it moves, and that means cutting prices."