Eye on the Economy with Adam Perrotta

Despite the optimism that greeted Barak Obama’s election to the Oval Office, the economy continues to struggle in a variety of areas. While experts continue to disagree as to whether or not an official recession is in the offing (or already taking place), it is clear that the President-Elect will inherit an economy with more than its share of problems.

Early this week, the nation’s No. 2 electronics retailer, Circuit City, filed for Chapter 11 bankruptcy. The move came a week after the firm announced it would close 155 stores in the wake of a drop in consumer
spending. Circuit City’s remaining stores will remain open throughout the bankruptcy proceedings.

Meanwhile, global delivery company DHL announced that it would cut 9,500 jobs and discontinue deliveries within the United States, though it will continue deliveries between the U.S. and other nations. The cuts come after the firm reduced its workforce by 5,400 earlier this year. 

And speaking of job cuts, nationwide, employers continued to slash positions in September, according to a Labor Department report last week. September saw a net loss of 159,000 jobs—the biggest one month drop in five years and the ninth straight month of losses. Year to date losses reached 760,000. The unemployment rate, meanwhile, remained at 6.1 percent. Perhaps most troubling about the report was the fact that losses were widespread across sectors, and not contained in a few industries.

The housing market also continued to struggle in September, with the National Association of Realtors’ pending home sales index dropping 4.6 percent during the month, after climbing 7.4 percent in August. The decline could have been more severe, if not for a sharp decline in home prices, which were down 9 percent over the previous September, due largely to foreclosures and tighter lending standards for
mortgages.

Those seeking a silver lining to the economic turmoil can look to the pump, where gasoline prices continued their decline, dropping to a national average of under $2.25 a gallon as of early this week–the lowest level since early 2007. Prices have plummeted some 45 percent from their mid July high, according to Triple A, as the faltering economy has decreased demand for oil.

The government, for its part, has kept up efforts to prop up the economy on several fronts.
In a plan to aid homeowners struggling to pay their mortgages, the Bush administration unveiled a plan to modify the terms of those home loans in hopes of stabilizing the single-family home market. The plan is especially significant in that it will apply to many loans held by beleaguered mortgage agencies Fannie Mae and Freddie Mac, which were taken over by the government in September due to massive losses on non-performing mortgages. Together, Fannie and Freddie hold a large percentage of the nation’s mortgage loans, and thus the plan could have a similarly wide-reaching effect.

Early this week, insurer AIG got a reworked $152.5 billion deal from the federal government, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout. The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period from two years to five years. In addition, the Treasury will also purchase $40 billion in AIG preferred stock. AIG was having difficulty paying back its original bridge loan, which it intended to use to sell off many of its subsidiaries to restore the firm’s financial standing.

As Obama prepares to take office in just over two months, his actions until then—especially, perhaps, his selection of a new Treasury Secretary—will be closely watched, and they could go a long way towards determining his early success in dealing with the nation’s faltering economy.