Economy and Housing Sales Post Declines

Trader Christopher Forbes works on the floor of the New York Stock Exchange, Friday Dec. 19, 2008....

Trader Christopher Forbes works on the floor of the New York Stock Exchange, Friday Dec. 19, 2008. Stock prices pared earlier gains to end a choppy day relatively flat on Friday, as Wall Street remained uncertain that a $17.4 billion lifeline for U.S. automakers will make a lasting difference for the beleaguered industry.

(Richard Drew/AP Photo)

The longest recession in a quarter century is snowballing, and some analysts warn that economic activity could plunge as much as 6 percent this quarter, which would be the largest decline since 1982.

While government figures released Tuesday for the third quarter showed only a 0.5 percent drop in the gross domestic product, a key indicator of economic health, two reports on home sales sketched a bleaker picture. Demand for both new and existing homes fell more sharply in November than expected.

In addition, GDP is likely falling at a sharper pace in the current quarter because of widening fallout from the worst financial crisis to hit the country since the Great Depression. If GDP does plunge 6 percent in the fourth quarter, it would be the sharpest such decline since a 6.4 percent drop in the first quarter of 1982.

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"It will get a lot worse before it gets better," said Nariman Behravesh, chief economist at IHS Global Insight, a Lexington, Mass., forecasting firm. "We are in the midst of the worst recession in the postwar period, even factoring in a massive stimulus program."

Economists said they saw no likelihood of a quick turnaround in housing or the overall economy, given that the credit markets remain locked despite a $700 billion financial rescue package and billions of dollars of loans supplied by the Federal Reserve. Mortgage financing has dried up for many potential buyers, further damaging a housing industry struggling with a tide of foreclosures.

Wall Street pulled back in quiet trading ahead of the holiday after the reports were released Tuesday morning. The Dow Jones industrial average finished lower for the fifth straight day, falling 100 points to close about 8,419.

The Bush administration warned that the country should be prepared for worse news to come.

"The fourth quarter, because of the credit crisis, the standstill in credit as markets froze up and the financial market turmoil, will be significantly weaker," presidential spokesman Tony Fratto told reporters at the White House on Tuesday.