The U.S. Department of Labor reported that consumer prices fell 1.7% in November from the month before, the fastest drop on record. In part as a result of tumbling oil prices, which fell 17% over one month due to plummeted demand for gasoline, retailers and auto dealers were cutting prices throughout the month of November to bring back wary customers and boost consumer spending, which is also falling.
Vehicle sales tumbled 2.8%, as consumers face higher hurdles for auto loans. Sales at gas stations fell almost 15%, after a sharp drop in fuel prices.
The dip in consumer prices in November continued the October trend, when prices drop approximately 1%.
As the United States generally holds a steady inflation rate of about 2% each year, the drop in prices is cause for concern among economists.
“All the factors which had contributed to the 2 percent-plus core rate in recent years — robust demand growth, the weak dollar and rising commodity prices — are now running rapidly in reverse,” Ian Shepherdson, United States economist at High Frequency Economics, wrote in a note, “and it is just a matter of time before core inflation starts to head south.”
As prices continue to drop and the housing market continues to stall, some economists are warning of deflation.
The Labor Department announced Thursday at that the initial applications for unemployment insurance benefits have increased to a level not seen since November 1982, even though the labor force has grown by about half since them. In the week ending December 6, 573,000 applications were received, far more than the 525,00 claims that economists were expecting.
The number of people continuing to claim jobless benefits also jumped much more than expected, increasing 338,000 to 4.4 million. Economists expected a small increase to 4.1 million.
The percentage of the workforce continuing to receive benefits is the highest since August 1992, when the U.S. was recovering from a mild recession.
The increase in continuing claims was the largest jump since November 1974, the department said.
Economists consider jobless claims a timely indicator of the health of the labor markets and broader economy. A year ago, weekly initial claims were 337,000.
As President-Elect Barack Obama rightly stated in his weekly YouTube Address, this is yet another sign of the bad economic times that resulted from the mortgage crisis.
Earlier this week we learned that the number of Americans filing their first claim for unemployment insurance rose to a nearly 30-year high. This news reflects the pain that’s been rippling across this entire economy. Jobs are being cut, wages are being slashed, credit’s tight and people can’t get loans. In cities and towns all across this country, families enter a holiday season with unease and uncertainty.
To end this economic crisis, we must end the mortgage crisis where it began.
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