Consumer spending D.O.W.N.! Worst xmas in 5 years for traders

http://news.yahoo.com/s/ap/20080116/ap_on_bi_go_ec_fi/economy_69

WASHINGTON - Consumer spending, the critical bulwark that has kept the country out of a recession, is showing signs of cracking. Retail sales plunged by 0.4 percent last month as consumers battered by a sinking housing market, rising unemployment and the credit crunch, handed retailers their worst Christmas in five years.

The Commerce Department's sales report Tuesday was just the latest in a string of weaker-than-expected numbers that have economists worried that the current economic expansion, now in its seventh year, could be in danger of faltering.
Analysts said the worry is that all the problems weighing on the economy could prompt consumers — who account for two-thirds of economic activity — to sharply limit or even stop shopping. Already, consumer confidence has slipped significantly amid the oil price spiral and the continuing housing slump. At the same time, some of the nation's biggest financial institutions have reported billions of dollars in losses stemming from a meltdown in the mortgage market.
"There is certainly enough out there to make people worry," said David Wyss, chief economist at Standard & Poor's in New York. "We think we are getting very close to a recession."
That view was echoed by former Federal Reserve Chairman Alan Greenspan, who said the country may already be in a downturn.
"The symptoms are clearly there," he said in a Wall Street Journal interview published Tuesday. "Recessions don't happen smoothly. They are usually signaled by a discontinuity in the market place and the data of recent weeks could very well be characterized in that manner."
Stock prices, one of the leading indicators used to judge the course of the economy, continued their 2008 swoon.
The Dow Jones industrial average was down more than 200 points in mid-afternoon trading after Citigroup Inc. announced it had sustained a $10 billion loss in the fourth quarter, reflecting in part the souring mortgage market.
Even before the problems with December retail sales, businesses were seeing inventories rise, including a 0.4 percent increase in November. An unwanted rise in inventories can translate into future production cutbacks by factories. A key gauge of manufacturing activity gave a recession reading earlier this month, falling to its lowest level in five years.
In other news Tuesday, the Labor Department said that wholesale inflation, which had shot up in November by 3.2 percent, the largest amount in 34 years, actually dipped by 0.1 percent in December. That reflecting a big drop in energy costs at the time. However, for all of 2007, wholesale prices rose by 6.3 percent. It was the biggest annual increase in 26 years.
Analysts said the dip in wholesale prices for the month of December, if followed by a benign report on Wednesday on consumer prices, should give the Federal Reserve the leeway it needs to more aggressively attack the economic slowdown with interest rate cuts.
Federal Reserve Chairman Ben Bernanke last week sent a strong signal that the central bank is more worried at the moment about weak growth than inflation, prompting markets to believe the Fed will cut a key interest rate by a half-point when Fed officials meet at the end of this month.
Bernanke, who will be quizzed on the economic outlook during an appearance Thursday before the House Budget Committee, cited various statistics including a big rise in unemployment as indications that "the downside risks to growth have become more pronounced."
Unemployment jumped from 4.7 percent in November to 5 percent in December, the biggest one-month leap since October 2001 when the country was still reeling from the shocks of the terrorist attacks.
Many economists believe that economic growth, which was powering ahead at a 4.9 percent rate in the third quarter, thanks to continued strong consumer spending, slowed to a barely discernible 1 percent rate in the final three months of last year and may now be dipping into negative territory.
To keep the gross domestic product from declining for two consecutive quarters — one rule of thumb for a recession — will require quick action by the Fed and help from Congress and President Bush, many analysts believe.
Bernard Baumohl, director of the Economic Outlook Group, said Congress must act "quickly and boldly" to pass an $85 billion stimulus package that should include a $600 per household tax rebate.
Bush has said he is considering an economic stimulus package. With the weakening economy rising to the top of voters' concerns, both Democratic and Republican presidential candidates are not waiting to put forward their own proposals.
The 0.4 percent fall in retail sales, which followed a 1 percent jump in November sales, reflected widespread weakness. Sales of clothing, sporting goods, and building supplies all fell. Some analysts said the December performance was depressed in part by the fact that Thanksgiving came early this year, pushing some Christmas sales into November.
The 6.3 percent increase in the Producer Price Index, which measures inflation pressures before they reach the consumer, reflected the fact that energy prices rose by 18.4 percent last year after having declined by 2 percent in 2006.
However, core inflation, which excludes energy and food, was considerably more moderate, rising by 2 percent last year, the same as in 2006. The Fed is closely watching core prices for any signs that the price pressures being seen in energy and food are starting to spread to other parts of the economy.
For December, the 0.1 percent drop in overall prices reflected a 1.9 percent plunge in energy and a 1.3 percent rise in food costs. Outside of food and energy, core inflation posted a moderate 0.2 percent increase.

http://www.pacificviews.org/weblog/archives/003296.html

Global Suicide Pact: The End of Cheap

This last Autumn, I heard three pieces of news that put me off writing about environmental, agricultural and energy issues ever since the last brick fell into place. I was like, 'surely the presidential primary fights and various human rights concerns make cheerier reading than this, for indeed, exposure to these facts verges on animal cruelty.'
Then, there was the fourth thing, a sinking realization that, if I were that sort of person, would have been followed by an attempt to drink myself to death over the holidays. But drinking a lot gives me migraines, which I clearly fear more than death. Also, a person ought not give in to the sin of despair.
These are the things I learned:
1. We've likely hit peak oil. 2. We've likely passed the tipping point for climate stability. 3. We're likely to lose the Arctic ice cap by 2013, or sooner. 4. No one is preparing to respond to these crises at the scale they demand.
It's true, I don't have a link for that last assertion and if it doesn't seem obvious, maybe I should elaborate on a couple of the other points. The end of cheap oil, which is what peak oil means, is also the end of cheap food. Not only are we past the stability point of 350 ppm (parts per million) of atmospheric carbon dioxide at 383 ppm, but according to the book "Global Warning" by Paul Brown, we've also added the equivalent of 45 ppm of CO2 in excess nitrogen oxides and methane to the atmosphere. That puts us at the equivalent of 428 ppm of global atmospheric CO2, a far cry from the pre-industrial levels of 280 ppm. James Lovelock, a respected life sciences visionary who once believed that we didn't have the capacity to really damage our climate, now projects that at the end of this century the world might only be able to support 500 million people.
See, that's comparatively the good news.
The Bad News
The bad news is that Congress was very, very excited last year to pass an energy bill out of which the big news was that "[t]he Corporate Average Fuel Economy, or CAFE, standards are increased to a fleet-wide average of 35 miles per gallon by 2020."
Seven years after the Arctic is likely to be ice free enough for oil drilling platforms to be up and running where it used to sit, the United States, user of the lion's share of the world's energy, will have mandated fleet efficiency standards 5 mpg lower than Europe's are today. Tell me that this sounds like doing enough to you.
Sen. John Kerry,☼ one of the good guys in the climate fight, held a conference call last November to talk about the Lieberman-Warner climate bill. He acknowledged that the next decade was crucial for making changes. These were the big ideas ... (drum roll) ... Give subsidies to demonstration projects that would study whether or not 'clean' coal and carbon capture technologies can be implemented. Funding nuclear energy as "part of the mix," while admitting that the long time frame for building nuclear plants meant it wouldn't be helpful during the next critical decade. Waiting for a new president and the hope of 2-3 Google equivalents in the energy sector over the decade.
That's the plan, folks. That's it. No matter who wins the presidency next year, that's the leading edge of possibility in the Congress they'll have to work with.
Because the reality of Washington, DC is that certain things aren't politically possible in this company town. (Which company? All of them.) Even when the reality outside DC, well, as Bill McKibben said:
... The problem lies in how one defines reality. Physics and chemistry demand swift and deep cuts in carbon emissions; political realism says to move slowly. In that fight, there's really only one choice. The tax code can be amended, but the laws of nature can't. ...
And so, we come to an end. The end of cheap. It's the end of paying nothing for a pleasant, comfortable climate, because it will now be very expensive to keep the climate from killing billions of us. If that's possible. It's the end of cheap energy, which will mean sharply reduced standards of living. If we're stupid, or if our leaders are.
Energy
Energy is the capacity to do work. On this planet, virtually all energy comes from the sun, and is captured by plants to do the useful work of turning CO2 into the sugars that power all oxygen-breathing beings. Every type of work, every good and service and leisure activity needs energy. For the whole of the industrial era, we've substituted ever greater quantities of stored solar energy in the form of fossil fuels for our current energy stock in the form of plant tissue and animal muscle power.
It can be hard to understand exactly how much energy we do use compared to what people used to have available. Difficult to picture. Yet as James Howard Kunstler explained in "The Long Emergency," it represents an amount of work that our species has never before been able to perform on its own, and may never again be able to:
Before fossil fuels - namely, coal, oil, and natural gas - came into general use, fewer than one billion human beings inhabited the earth. Today, after roughly two centuries of fossil fuels, and with extraction now at an all-time high, the planet supports six and a half billion people. ... Fossil fuels provided for each person in an industrialized country the equivalent of having hundreds of slaves constantly at his or her disposal.
... Nothing really matches oil for power, versatility, transportability, or ease of storage. ... Oil led the human race to a threshold of nearly godlike power to transform the world. It was right there in the ground, easy to get. We used it as if there was no tomorrow. Now there may not be one."
In other words, if the weather and sea level rise (h/t Bill in Portland Maine) doesn't knock off a few billion of us, starving in the dark certainly will.
That is not the future fate that would be waiting for us if we'd followed a path of environmental sanity. It doesn't have to be the fate that we end up with. But it will be if political reality doesn't merge with the actual reality we're presented with. It will be if the economic leading lights who are allowed to dictate resource use keep telling us that it's too expensive to act to preserve the lives of 6 billion people, so we might as well just keep doing what we're doing and hope that The Market presents a solution to the biggest market failure in history.
Markets don't do anything. People do. Markets represent a series of relationships that provide incentives. People invent things like high capacity batteries, foil strip solar collectors, they figure out how to make diesel fuel from algae grown on already ruined land. And here we come to a problem.
The Bottleneck
If your neighbor figured out a better plow design a couple hundred years ago, you could copy it. You can't make solar power foil in your garage. As individuals, we're specialized in our work, which takes up most of our productive time and pays for the myriad of fossil fuel servants we depend on. If complex innovations aren't implemented by the actors we depend on for goods and services, corporations and governments, they might as well not exist.
Our governments and corporations have taken the path of least resistance, dragging their feet and doing virtually nothing because it's been cheap. Which is to say, profitable. As life runs on energy, large institutions run on money. Corporations make money, which goes to hire their very own politicians, who then make laws that favor existing corporations at the expense of threatening innovations that might choke off their money supply.
This is killing us. And not nearly as slowly as we'd thought it might.
If we are addicted to oil, out of our animal need for the energy with which to carry out the necessary tasks of our lives, we are enslaved to the logic of money. Enslaved; because slavery is the product of a human choice, not biological necessity. We can't eat money and we can't use it to cook with, but we've been set up to live or die by the dictates of its Chicago School priests.
It's a tragedy in the classic mold where the protagonists could have been saved right to the end, but for the worse demons of their nature and the cruel inflexibility of those around them. Don't you find yourself cringing at the end of stories like that of King Lear, or Oedipus, or Antigone, and saying something that starts with, "If only ..."
Welcome to our global suicide pact.