Fallout from financial crisis hammers housing & Hawaii ending universal child health care & Southern drought creeping northward

[Mrs. Sharon B. Hodge]

Fallout from financial crisis hammers housing

WASHINGTON – The nation is on track to build fewer homes this year than at any time since the end of World War II, adding to the woes of an economy that analysts said Friday has almost certainly entered a recession.
While the economic outlook darkened even further with bad reports on layoffs and consumer confidence, it was one of the quietest days since the financial meltdown began a month ago. Wall Street's tumultuous week turned out to be its best in five years.
The Dow Jones industrial average lost 127 points Friday but turned in the strong week because of two huge days of gains — a record 936-point jump on Monday and an increase of 401 points Thursday.
Friday was still marked by the huge swings that have become typical lately. At various points the Dow was up nearly 300 points and down nearly 250, and it finished with a triple-digit move for the 22nd time in 25 trading sessions.
A monthly survey by the National Association of Home Builders showed sentiment among home builders hit a record low in early October.
David Seiders, chief economist for the group, said builders are being hit by a double whammy from the financial turmoil: It's harder for them to get loans to pursue new houses, and more difficult to sell those they do build.
He forecast that builders will keep slashing production in coming months, with construction starts for new homes and apartments totaling just 936,000 this year, the lowest level since 1945.
"The builders are telling us that the financial crisis is really hurting because people justifiably have no idea where things are going," Seiders said.
Before the markets opened, President Bush went to the headquarters of the U.S. Chamber of Commerce to say that the $700 billion financial rescue package was "big enough and bold enough to work."
But he cautioned that it would take time to unlock credit markets.
Adam Levitin, an associate professor at Georgetown University Law School, said that even with the government's injection of billions into the banks, the high debt loads carried by consumers and shortage of creditworthy borrowers could continue to chill lending.
"Who's going to lend to GM right now?" Levitin said at a conference organized by the American Bar Association. He also asked what banks would lend money to homeowners with troubled mortgages.
Analysts said new data released Friday showed it's probably too late for the economy to avoid a recession.
Many of them said they now had recessions in their forecasts, believing that the overall economy, as measured by total domestic production, probably shrank in the July-to-September quarter, dragged lower in part by the continued plunge in housing.
"I don't think there is any ambiguity with respect to whether we are in a recession," said Mark Zandi, chief economist at Moody's Economy.com. "I think it actually started at the end of last year, and because of the financial panic we are going through now, it is likely to last another year."
Other economists said they were looking for at least three consecutive quarters of contraction, reflecting in part the fact that consumers, who account for two-thirds of total economic activity, are showing the strains of the biggest upheaval in the financial sector in 70 years.
A new University of Michigan/Reuters survey showed consumer confidence plunged in early October to its second-lowest level in the past 28 years.
"Concerns about falling employment, incomes and wealth have overshadowed relief from lower energy prices," said Sara Johnson, an economist at Global Insight, a Lexington, Mass., forecasting firm.
The Commerce Department said Friday that construction of new homes and apartments dropped by a bigger-than-expected 6.3 percent in September to an annual rate of 817,000 units, the second weakest performance in government statistics dating back to 1959. The only weaker monthly showing occurred in January 1991, when the U.S. was in a recession and going through a similar painful housing correction.
In a bleak sign of future construction, applications for new building permits fell a sharp 8.2 percent to an annual rate of 786,000 units, the weakest level in more than 25 years.
The government also sharply revised lower its construction data for July and August. That was after dismal news earlier this week that retail sales fell by 1.2 percent in September.
Influential billionaire investor Warren Buffett said in opinion piece in The New York Times that he sees opportunity in the Wall Street chaos. He's been moving his personal investments from safe Treasuries into U.S. stocks.
"To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions," Buffett wrote. "But fears regarding the long-term prosperity of the nation's many sound companies make no sense."
The market eventually will turn around. "So if you wait for the robins, spring will be over," he said.
On the housing front, while the sharp cutbacks in production will help reduce huge inventories of unsold homes, the problem is that rising levels of foreclosures are dumping more homes on the already glutted market.
Zandi said he believed that home prices, which have already fallen by 20 percent, will fall by another 10 percent and will not stabilize until the middle of next year.
Kim Shelpman, the chief executive of Holiday Builders, which operates in Texas, Florida, Alabama and South Carolina, said that her company was competing against a rising tide of foreclosures, but that she believed the excess inventory of homes was being "eaten up at a much quicker pace."
Jesse Barrington, a sale consultant with Sotherby Homes, said the sales slowdown nationwide had been less pronounced in the upscale suburbs of north of Dallas where about 20 homes in a new subdivision had recently sold.
"In a normal economy, this is a good year. In this economy, it's phenomenal," he said.
In the South, sales managed a small 0.5 percent gain in September. They rose by 5.6 percent in the Midwest, where a boost in apartment building offset a slide in single-family homes to a record low.
The weakness last month was led by a 21 percent drop in the Northeast, where construction of single-family units fell to the lowest level on record, and the West, where building slipped by almost 17 percent with single-family construction also hitting a record-low in that region.
On Tuesday, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership stakes, in a program similar to one launched in 1932 by President Herbert Hoover. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers.
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AP Business Writers Jeff Carlton in Dallas and J.W. Elphinstone in New York contributed to this report.


Hawaii ending universal child health care

HONOLULU – Hawaii is dropping the only state universal child health care program in the country just seven months after it launched.
Gov. Linda Lingle's administration cited budget shortfalls and other available health care options for eliminating funding for the program. A state official said families were dropping private coverage so their children would be eligible for the subsidized plan.
"People who were already able to afford health care began to stop paying for it so they could get it for free," said Dr. Kenny Fink, the administrator for Med-QUEST at the Department of Human Services. "I don't believe that was the intent of the program."
State officials said Thursday they will stop giving health coverage to the 2,000 children enrolled by Nov. 1, but private partner Hawaii Medical Service Association will pay to extend their coverage through the end of the year without government support.
"We're very disappointed in the state's decision, and it came as a complete surprise to us," said Jennifer Diesman, a spokeswoman for HMSA, the state's largest health care provider. "We believe the program is working, and given Hawaii's economic uncertainty, we don't think now is the time to cut all funding for this kind of program."
Hawaii lawmakers approved the health plan in 2007 as a way to ensure every child can get basic medical help. The Keiki (child) Care program aimed to cover every child from birth to 18 years old who didn't already have health insurance — mostly immigrants and members of lower-income families.
It costs the state about $50,000 per month, or $25.50 per child — an amount that was more than matched by HMSA.
State health officials argued that most of the children enrolled in the universal child care program previously had private health insurance, indicating that it was helping those who didn't need it.
The Republican governor signed Keiki Care into law in 2007, but it and many other government services are facing cuts as the state deals with a projected $900 million general fund shortfall by 2011.
While it's difficult to determine how many children lack health coverage in the islands, estimates range from 3,500 to 16,000 in a state of about 1.3 million people. All were eligible for the program.
"Children are a lot more vulnerable in terms of needing care," said Democratic Sen. Suzanne Chun Oakland. "It's not very good to try to be a leader and then renege on that commitment."
The universal health care system was free except for copays of $7 per office visit.
Families with children currently enrolled in the universal system are being encouraged to seek more comprehensive Medicaid coverage, which may be available to children in a family of four earning up to $73,000 annually.
These children also could sign up for the HMSA Children's Plan, which costs about $55 a month.
"Most of them won't be eligible for Medicaid, and that's why they were enrolled in Keiki Care," Diesman said. "It's the gap group that we're trying to ensure has coverage."
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On the Net:
Hawaii Medical Service Association: http://www.hmsa.com/


Southern drought creeping northward


CHARLESTON, W.Va. – The drought that has plagued the Deep South for more than a year is creeping northward, and officials in multiple states are restricting outdoor burning in the face of water shortages and forest fire risks from falling leaves and tinder-dry conditions.
Extreme drought conditions, the second-worst possible, have now spread into Kentucky, and severe conditions have returned to West Virginia and southwest Virginia, according to the U.S. Drought Monitor.
"The last three months have sucked every bit of moisture we've had," said Ben Webster, a fire staff assistant for the West Virginia Division of Forestry.
In eastern Kentucky, retailers are sending bottled water to drought-stricken Magoffin County after its primary water source, the Licking River, fell to low levels and residents were told to conserve tap water.
The county's school system is serving meals on disposable plates with plastic utensils. Lunch trays have been temporarily shelved to save on dishwashing.
Kentucky also suffered through a severe drought a year ago, but "this is probably the worst that I've had to deal with," said Joe Hunley, Magoffin County's schools superintendent.
Tens of thousands of gallons of bottled water have been distributed through a fire department and a water company alone.
"We're bringing water in daily and distributing it to those people who are in need," said county health director Berti Salyer. "Of course, that's just about everyone in Magoffin County right now."
Outdoor burning has been banned outright in 34 Kentucky counties and limited to between 4 p.m. to 7 a.m. in West Virginia.
"We're just telling people to use extreme caution and a whole lot of common sense when they're burning," Webster said.
Virginia officials need only look to last winter for reminder to be careful with campfires and burning leaves. High winds on Feb. 10 were blamed for wildfires that charred more than 16,000 acres.
"Take an extra precaution, take that extra time to make sure that fire is fully out, "said John Miller, the Virginia Department of Forestry's director of resource protection.
Thursday's rains did little to calm the threat and the short-term forecast holds no relief.
The largely hardwood forests of Kentucky and West Virginia do not burn as fiercely as the pine forests of the West. Since Oct. 1, 148 forest fires have burned 2,052 acres in Kentucky, and 103 fires have burned 452 acres in West Virginia.
West Virginia officials want to avoid years like 2001, when 86,465 acres burned during the October-December period, or 2006, when 1,022 fires were reported.
"The problem with a drought in the fall is as the leaves start to come down, if you have continued dry weather, the fire threats go up," said Mark Pellerito, a National Weather Service meteorologist in Charleston.
West Virginia doesn't have the water supply concerns seen elsewhere because water tables are still within a couple inches of normal ranges due to a wet spring, Pellerito said.
Elsewhere in the South, however, a lack of water remains the main concern.
In Tennessee, Gov. Phil Bredesen has requested a federal designation of agricultural disaster for 39 counties because of crop and livestock losses. And in parts of north Alabama and Georgia, the Army Corps of Engineers recently said below normal rainfall could bring a third consecutive year of drought.
Tennessee and South Carolina worry Atlanta may look to the nearby Tennessee or Savannah rivers for relief. Meanwhile, Georgia, Alabama and Florida have fought over how much water can be stored in north Georgia lakes.
South Carolina Attorney General Henry McMaster sued North Carolina last year after the state decided to allow 10 million gallons of water a day to be diverted from the Catawba River, which flows into South Carolina.
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Associated Press writer Bruce Smith in Charleston, S.C., contributed to this report.