U.S. falls deeper into recession

NEW YORK (Reuters) - The United States fell deeper into recession, data showed on Wednesday, as the number of people filing for jobless benefits hit a 26-year high last week and consumers cut spending for the fifth consecutive month.

Elsewhere, Japan and Germany became the latest countries to approve new spending programs to jolt their own economies out of recessions brought on by the worsening global credit crisis.

In Tokyo, the government approved an 88.5 trillion yen (£663.3 billion) budget, its biggest ever, to help finance a 12 trillion yen fiscal stimulus program.

Germany announced plans for a second stimulus package, to be capped at $25 billion euros (£23.7 billion), to help Europe’s biggest economy weather a growing recession.

So far, however, increased spending in economies around the world has yet to boost confidence among businesses, investors or consumers.

Data on Wednesday showed U.S. consumers cut spending in November as their incomes shrank, pointing to a prolonged recession for the world’s largest economy.

New orders for long-lasting manufactured goods fell 1 percent in November, following a steeply revised plunge of more than 8 percent the prior month, while the number of U.S. workers filing for jobless benefits for the first time soared by 30,000 to a 26-year peak in the week ended December 20.

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Nearly 2 million U.S. workers have lost jobs this year, driving the unemployment rate to 6.7 percent.

“I don’t think we are going to have a major reassessment of the U.S. economic situation based on today’s data,” said Daniel Katzive, director of global foreign exchange at Credit Suisse in New York. “All in all, the scenario remains pretty weak.”


Many leading companies are also struggling to keep their businesses afloat, resorting to cutting jobs or work days, or reducing benefits to counter weakening demand.

For others the crisis has become too powerful.

In Britain, retailer Zavvi, which sells CDs, DVDs, games and books, became the third high street victim of the crisis in less than 24 hours as it fell into administration. Zavvi was formed 15 months ago from management buyout of the Virgin Megastore division of the Virgin Group.

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Stock markets in Japan and Europe fell in thin, pre-holiday trade, while Wall Street edged higher.

Developed and developing countries alike have taken drastic measures to fight the deepening crisis, with increased spending at the forefront of their efforts.

Central banks have cut interest rates sharply and flooded their economies with cash in hopes of kick-starting spending and preventing a deflationary spiral.

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The U.S. Federal Reserve and the Bank of Japan have both cut interest rates to near zero, and more rate cuts are expected in Britain and the 15-country euro zone in early 2009.

Speaking at a news conference on Wednesday, Japanese Prime Minister Taro Aso said, “Japan cannot avoid the tsunami of the world recession, but it can try to find a way out.”

“The world economy is in a once-in-a-hundred-years recession. We need extraordinary measures to deal with an extraordinary situation,” he said.

Germany’s intended stimulus plan was smaller than the 40 billion euro measures originally reported for new projects and was unlikely to ease pressure on Chancellor Angela Merkel, who has been attacked by politicians and economists who want her government to do more to boost the economy.

Further east, countries have also sought to stave off recession by cutting rates and spending their way out of trouble.

Poland’s central bank said it was likely to cut rates further in 2009 [nLO188992], while in Russia, a central bank source confirmed that authorities devalued the ruble for the seventh time in a month.

A Russian government minister also said the country was facing unrest. “The situation may be exacerbated by a growth in protests, arising from the frustration of workers over the non-payment of wages or those threatened with dismissal,” RIA news agency quoted Deputy Interior Minister Mikhail Sukhodolsky as saying.

Reporting by Reuters bureaus around the world; Editing by Leslie Adler