No Christmas cheer as U.S. recession gathers steam

By Alister Bull

WASHINGTON (Reuters) - U.S. existing home sales fell by a record amount last month as the recession picked up pace although a collapse in gasoline prices gave consumer sentiment a rare lift, data on Tuesday showed.

"The bottom line: Bah humbug. Recession, recession, recession," said Jennifer Lee, an economist with BMO Capital Markets in Toronto.

The solitary good news came from the Reuters/University of Michigan Surveys of Consumers, which rose to 60.1 in December from November's reading of 55.3 due to lower energy and retail prices after stores made radical markdowns to tempt shoppers.

This trend was expected to continue, with the report noting more consumers expect price declines than in any other survey since 1960, pointing toward deflation fears that have prompted the Federal Reserve to cut interest rates to almost zero.

The U.S. recession began last December and data from the Commerce Department confirmed analyst expectations that output shrank at an annual rate of 0.5 percent in the third quarter as consumption and investment slumped.

Conditions are expected to get much worse before they get better, with the economy predicted to shrink by as much as 6 percent in the fourth quarter and keep declining for the next six months before a tepid recovery takes hold later in 2009.

"We are in the midst of the worst recession in the post-war period, even factoring in a massive stimulus program," said Nariman Behravesh, chief economist at IHS Global Insight.

President-elect Barack Obama is expected to unleash a massive government spending program when he takes office next month to reinforce the powerful policy boost from the Fed, which has also pumped over $1 trillion into credit markets.