U.S. household wealth declines by record amount in fourth quarter of 2008.  U.S. household net worth fell by $5.1 trillion last quarter (not seasonally adjusted), almost double the decline in the third quarter of 2008.   Since reaching its peak in the second quarter of 2007, household net worth has declined by over 20 percent due to sharp housing price and stock market declines and is now roughly equal to the levels seen at the end of 2004.  At the same time that housing prices have fallen, owners’ equity as a share of household real estate has also fallen – owners’ equity fell to 43 percent in the fourth quarter of 2008.  Owners’ equity has been declining rapidly since the third quarter of 2005, when it was 58.7 percent.  Consumer spending is unlikely to pick up given these large wealth declines as consumers seek to get their balance sheets in order (See Chart); household savings have increased – personal savings increased $343.2 billion at a seasonally adjusted annual rate last quarter.  

Retail sales, absent auto sector, higher in February.  The Commerce Department announced that retail sales excluding motor vehicles and parts rose 0.7 percent in February.  However, retail sales less autos are still 5.0 percent lower than in February 2008.  Compared to January, retail sales rose in furniture and home furnishings (0.7 percent), electronics and appliance stores (1.2 percent), health and personal care (0.6 percent), gasoline stations (3.4 percent), clothing (2.8 percent), sporting goods and hobbies (0.2 percent), general merchandise (1.3 percent), and non-store retailers (0.3 percent).  However, with the exception of health and personal care, sporting goods and hobbies, and general merchandise, the year-over-year changes were still negative for those sectors that showed improvement last month.  Sustained increases in retail purchases is unlikely at the present because of surging unemployment, declining home and stock values, and shrinking wealth.

Industrial production experiences worst year-over-year decline since 1975.  The Federal Reserve announced that industrial production fell by 1.48 percent in February, the fourth straight month of declines.  In the 12 months that ended in February, industrial output was down 11.2 percent, the biggest year-over-year decline since 1975.  Capacity utilization also declined to 70.9 percent, matching its lowest level on record.  Industrial production has been hit hard by declines in both American and foreign demand for goods brought on by the ongoing economic and financial contractions.

U.S. trade deficit falls for a record sixth straight month.  The U.S. trade deficit narrowed in January by $3.9 billion according to the Commerce Department.  Exports have fallen 16.4 percent over the last year while imports declined 22.8 percent, largely due to oil price declines, over the same time period.  The collapse of foreign demand for American goods due to the global recession is of particular concern as exports declined 5.7 percent in January to $124.9 billion, the lowest level since September 2006.