Bleak economic picture emerges from new data

A series of gloomy economic reports Wednesday showed consumers holding tight to their wallets with job losses expected to mount in the months ahead.

There was one glimmer of good news, however. Lower gas prices and widespread holiday discounts are giving consumers greater buying power. Consumer spending, when adjusted for those price drops, rose last month after five months of declines, the Commerce Department said.

Late Wednesday, the Federal Reserve granted a request by the financing arm of General Motors to tap the government's $700 billion rescue fund, bolstering GM's ability to survive.

The Fed said it had approved GMAC Financial Services' request to become a bank holding company. That designation makes GMAC eligible to receive a portion of the bailout fund and get emergency loans directly from the Fed.

Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down.

Even though consumer spending, adjusted for inflation, rose in November, economists don't expect consumers to ramp up spending anytime soon. In part, that's because companies in a wide range of sectors have been laying off workers.

November's inflation-adjusted increase in spending is "a temporary, one-month aberration in the downward trend of consumption," said Brian Fabbri, chief economist at BNP Paribas.

Without adjusting for inflation, the Commerce Department said consumer spending fell by 0.6 percent in November, the fifth straight month of decline.

Separately, the Labor Department said the number of Americans who filed initial claims for unemployment benefits rose to the highest level in 26 years, though the labor force has grown by about half since then.

New claims for jobless benefits jumped to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week.

A Labor Department analyst said auto-related layoffs were a key factor behind the rise in jobless claims. The four-week average of initial claims, which smooths out fluctuations, rose to 558,000. That's the highest since December 1982, when the economy was emerging from a steep recession.

The elevated level of new jobless applications is one of several signs that the labor market has deteriorated fast in recent months. The Labor Department said earlier this month that employers cut a net total of 533,000 jobs in November, sending the unemployment rate to 6.7 percent, highest in 15 years.

The financial markets took the news in stride. The Dow Jones industrial average closed up nearly 49 points, to about 8,468.

The economy has been mired in recession since last December, dragged down by declining home prices and clogged credit markets. Consumers have lost trillions of dollars in household wealth as the stock markets and home prices have sunk this year.

In another report released Wednesday, the Commerce Department said orders for large manufactured goods dropped by 1 percent, less than the 3 percent economists had expected.

The November decline was led by a huge drop in orders for aircraft and a smaller drop in autos. Excluding the big decline in transportation, total orders rose 1.2 percent in November, the best showing since June.

Mass layoffs are taking place in a wide range of industries. Industrial conglomerate Textron Inc. on Tuesday said it has cut 2,200 jobs, while technology services provider Unisys Corp. said Monday it will eliminate 1,300 jobs. Sovereign Bancorp Inc.'s bank unit said last week it is laying off 1,000 employees.

In the meantime, federal regulators are moving to sell the remnants of failed IndyMac Bank before year end, mopping up from the second-largest bank failure this year.

It was unclear Wednesday whether the government would sell off IndyMac as a whole or in pieces. The Pasadena, Calif-based lender, which specialized in loans made with little down payment or proof of assets, failed in July as the U.S. housing market bubble collapsed.

Rates on 30-year fixed-rate mortgages fell to a record low for the second straight week, causing refinancing applications to surge to the highest level in more than five years, a month after the Federal Reserve pledged to channel billions to prop up the sinking U.S. housing market.

Freddie Mac, the mortgage company, reported Wednesday that average rates on 30-year fixed-rate mortgages dropped to 5.14 percent this week, down from the previous record of 5.19 percent, set last week. The rate was the lowest since Freddie Mac's weekly mortgage rate survey began in April 1971 and the eighth straight week of declines.

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AP Business Writers Martin Crutsinger and Alan Zibel contributed to this report.