January 30th, 2009
11:59 AM ET

Financial Dispatch: Incredible shrinking economy

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Gene Bloch
Managing Editor
CNN New York

The recession gathered speed in the last three months of 2008. The government this morning reported Gross Domestic Product – the sum total of goods and services produced within U.S. borders – declined at a 3.8% annual rate in the fourth quarter, the worst performance in 26 years. It may come as small comfort, but most economists were expecting worse.

Things probably couldn’t be worse for the New York City economy, and Mayor Bloomberg is expected to outline a dire budget plan which seeks to save $1 billion next year, and 23-thousand city jobs could be at risk. Among those reportedly facing job loss, 15-thousand teachers, and some new taxes and fees—including one in grocery stores on plastic shopping bags. The NYC budget shortfall got much worse after the financial crisis and a big drop in tax receipts from Wall Street. The Mayor will lay this out in a City Hall speech at Noon today.

More jobs pain this morning at Caterpillar, which says it will eliminate more than 2100 jobs at three Illinois plants – that comes on TOP of 20-thousand cuts announced on Monday.

One glimmer of good news today – the revised Index of Consumer Confidence from U. of Michigan rose slightly this month.

The economic pinch in some cases means cuts in aid to senior citizens – CNNMoney went to Rhode Island for a report on a Senior Center that had its funding slashed, and the real impact that’s having on people who rely on it for help with meals.

And the banking crisis is still very much a problem that needs to be addressed. There are many options on the table, and Treasury Secretary Timothy Geithner says the administration will make its proposals “relatively soon." See Fortune’s Colin Barr's  report.

Gas prices edged higher today to $1.84 a gallon, according to AAA. The huge plunge in gas and oil prices in 2008 took at toll on profits at Exxon Mobil in the last three months of the year, but the 44% decline (to $7.8 billion) in the quarter did not stop the company for posting a record annual profit of $45.2 billion. It’s the most money any U.S. company has ever made in one year. Chevron posted a small gain in its quarterly profit of $4.9 billion.

In today's Energy Fix, the recent plunge in gas prices has made hybrids a tough sell these days, especially since they remain pricey compared to non-hybrids.

But that’s not stopping automakers from rolling out new hybrids—Toyota just unveiled its redesigned Prius (50 miles to the gallon), and Honda is rolling out a Prius competitor, the Honda Insight. Both are due in showrooms this spring. But the question remains for consumers: given the price of gas, are hybrids really worth it?

An interesting energy-related story shaping up in California: President Obama earlier this week decided to review California's request to tighten emissions standards – a move that may force a crippled auto industry to build cars that get better gas mileage. Confusion, about what exactly Obama and California were doing, was apparent on the day of the announcement. In fact, it's still unclear what the intentions of the administration are, and what effect California's proposed rules would have on the auto industry, the environment and consumers. CNNMoney has a good writethrough.

Chief Business Correspondent Ali Velshi tonight will lead CNN’s first “Money Summit,” which will delve into the recession, a collapsing housing market, rising unemployment and exploding budget deficits. This special from the AC360 team will explore the big questions facing President Obama about the economic crisis using the latest on-air technologies and iReports to advance the conversation. Panelists include Katie Benner, writer/reporter, Fortune; Telis Demos, writer/reporter, Fortune; David Gergen, CNN senior political analyst, Stephanie Mehta, assistant managing editor, Fortune; Amanda Gengler, writer, MONEY magazine; Jeanne Sahadi, senior writer, CNNMoney.com, Andy Serwer, editor, Fortune; and Walter Updegrave, senior editor, MONEY magazine. The special airs tonight at 11pm ET.

Filed under: Economy • Finance • Gas Prices • Gene Bloch • Oil • Wall St.
soundoff (6 Responses)
  1. jim Fallbrook CA

    This recession would be over when Banks start loaning money to small business and corporations. They got their bailout. Still are slow to lend money. When the majority of foreclosed homes are off the books, that should revive the housing market. Rather than giving a stimulus a.k.a welfare to stimulate the economy, the banks should have mortgage rates at 3%. After all they are getting the money for 0% interest. If this was done, the recession would be over within 6 months. My liberal friends should also remember the recession is no where close to being as bad in the Jimmy Carter presidency. Just to refresh their memory, how about a 21% mortgage, 14% unemployment and 18% inflation. I was there and that was as close to a depression as it can get.

    February 1, 2009 at 11:25 pm |
  2. Annie Kate

    Maybe with those record profits the oil company can do the bailouts instead of the government. Hybrids are a better choice even now than purely gas powered cars. Gas prices will go back up (they always have before) and emissions standards will be adopted. If you have the money to buy a car I'd go ahead and get a hybrid and be ahead of the curve.

    January 30, 2009 at 7:05 pm |
  3. Michael "C" Lorton, Virginia

    No matter how much the economy shirnks--the oil industry still gathers it profits---maybe not as much--but they are still gathering--and our government still keeps infusing billions and billions of dollars without transparency or accountability--something is terribly wrong with this picture.

    January 30, 2009 at 3:01 pm |
  4. earle,florida

    It should be no suprise that our economy is shrinking. In fact, I'm a bit taken back it's not more dire? Let's look at the "Three Principle Player's", : #1) The Financial Banking System #2) Corporate America #3) Wall Street,and see how the pieces fit into the current economic crises. I see" Wall Street's" role as an enabler ,only on the periphery as the main culprit. Now we get into the," meat and potato's"of the problem. For the past thirty-years,"Corporate America" has been outsourceing good paying american jobs oversea's,simultaneously building their industrial/manufacturing plants/facilities in "Communist,and Socialist Countries" paying labor approx. "Ten Cents on our Dollar"! They still have the gall to call this free trade with a level playing field,go figure? These "Greedy Conglomerate Corporation's",are the reason were here today! Finally, the "Financial Banking System",has been a train wreck waiting to happen for decades in this country because of " Law's Repealed & No Regulation & No Tranparency" ,brought on by the past "Five Presidential Administrations",which were both Democratic,and Republican! It's time for "Term Limits",and the ideology of age ,and experience trumping youth has been debunked in my eye's,...JMHO

    January 30, 2009 at 1:22 pm |
  5. Michael "C" Lorton, Virginia

    The President is trying to sitimulate the economy with various bills and programs---and even in troubling times-–the corporations are contriving on how to get more money for the consumers and overburden taxpayers. Like pouring water into a bucket with hole at the bottom--nothing ever gains cause and effect to have an effect. We will layoff more people-–so we can retain a plateau profit level--let's rasie the price of gas--we have had enough of a hiatus-–let's tax plastic bags-–let tax groceries-–let's tax the tax. Regardless of how much the President is trying to reverse the dive of the economy-–corporate America reains constant--do what it takes to main a reasonable profit margin--regardless. The mindset of corporate greed will never change-–and the sheep are going to continue to be sheered-–and corporate America's answer-God would not have made them sheep if they weren't meant to be sheered--the rich get rich-and the poor will continue to get (expletive).

    January 30, 2009 at 12:58 pm |
  6. adren

    Been watching the collapse unfold for the past 5 years, capitalisim is corprate communism, and the decentralized civilians have no hope of combating a centralized government. I am ashamed to be an american. Our children are condtitioned to blindly follow authority, the fact that a student is expelled for self defence shows the rest of the students that it is wrong to defend themselves. Since no child left behind, the majority of schools no longer teach the constitution or bill of rights, after all who needs those when you have the patriot act. Any way i digress. My questions is how long do you think untill the service industry '" buble" bursts? Ps since state budgets are in the toilet we can all expect warmer treatment from local police trying to meet thier new quota. The new american dream is to make enough money to leave the country. " A person is only as free as the governments ability to enforce its will"

    January 30, 2009 at 12:47 pm |