As Fed Slashes Rates, CPI, Housing Starts Drop

Though an interest rate cut had been widely anticipated, the Fed made a more extreme move than many had expected today, knocking down its benchmark interest rate to between 0 and .25 percent, its lowest ever level. The markets rallied in the wake of announcement, with the Dow Jones rising about 370 points by late afternoon.The Department of Labor’s Consumer Price Index dropped 1.7 percent last month, a new record amount that came on top of October’s record 1 percent drop. It isn’t necessarily a sign of impending deflationary doom, however. Chalk it up to the falling price of energy and food. Take those away and consumer prices didn’t budge one way or the other in November. Contracting consumer demand for goods of any kind was probably a factor in the stability of prices as well. People are spending less and saving more: A report by the Federal Reserve last week noted that U.S. household debt dropped by 0.8 percent, the largest monthly amount since the Fed started tracking the numbers in 1951. Consumers are even buying less in that long-favored consumer category, electronics. In its third fiscal quarter, ended Nov. 29, Best Buy Co. saw profits decline 77 percent to $52 million, or 13 cents a share, compared with the same period in pre-recessionary 2007. Same-store sales, an important retail metric, were down 6.3 percent compared with last year. The drop, the company said, was mainly due to consumer cutbacks on digital cameras, televisions, major appliances and entertainment such as movies and music. The retailer isn’t expected to close any of its stores, but the news will still have an impact on retail real estate. Best Buy anticipates cutting its capital spending by half in 2009, which will translate into far fewer new store openings, though it didn’t specify a number. During the quarter just ended, the company opened 37 Best Buy stores, bringing its total to 1,010 in the U.S. The problem vexing retail expansion isn’t just flaccid consumer spending, either. There are also far fewer new rooftops for retail development to follow: Housing starts fell again last month by some 18.9 percent, to an annual rate of 625,000, according to the Department of Commerce–the lowest rate since the department started keeping track in 1959. Building permits dropped 15.6 percent to a 616,000 annual pace, which was also a record. Back on Wall Street, Goldman Sachs Group, which started the year as an investment bank but which is now a regular bank, has reported its first-ever loss since going public in the late 1990s: $2.12 billion. Ordinarily, this would be seriously unwelcome news, but in these days of bailout billions and multibillion-dollar Ponzi schemes, it seems like small potatoes.