A rare ray of sunshine for shoppers: lower prices

WASHINGTON — American consumers hit by a seemingly endless stream of bad news, from vanishing jobs to shrinking retirement accounts, got a small dose of relief: lower prices at stores.

The Consumer Price Index, the country's most closely watched inflation gauge, dropped 1 percent in October, the biggest monthly decline on records dating back to 1947, the government reported Wednesday. Over the past year, though, consumer prices are up 3.7 percent, which is faster than wage growth over the same period, putting a squeeze on household budgets.

Even with the monthly price reprieve, consumers are in no mood to go on a shopping spree. They have been cutting back sharply on spending because of the strains from job losses, shrinking nest eggs and falling home prices.

The retrenchment jolted the national economy into reverse in the third quarter. Many predict economic activity will continue to shrink through the rest of this year and during the first three months of next year, more than satisfying one definition of a recession. That is, two straight quarters where the economy contracts.

Another report out Wednesday showed that the housing market, one of the economy's weakest spots, continues to be in a deep funk. Builders slashed home construction by 4.5 percent last month driving it down to the lowest level on records going back to 1959.

Meanwhile, chiefs from the nation's struggling auto companies were set to return to Capitol Hill to make a fresh plea for financial aid.

Detroit's Big Three automakers begged Congress Tuesday for a $25 billion lifeline to save their teetering companies. They warned of economic upheaval and millions of layoffs if one of the companies were to collapse.

"Our industry ... needs a bridge to span the financial chasm that has opened up before us," General Motors Chief Executive Rick Wagoner told the Senate Banking Committee Tuesday. He blamed the industry's predicament not on failures by management but on the deepening global financial crisis.

The new auto rescue plan, however, appeared stalled on Capitol Hill, opposed by Republicans and the Bush administration not willing to dip into the Treasury Department's $700 billion financial bailout program to come up with the $25 billion in loans.

Faced with exasperated lawmakers upset by shifts in the bailout strategy, Treasury Secretary Henry Paulson launched a spirited defense of his handling of the $700 billion program in a separate hearing on Tuesday.