WASHINGTON -- Oil hit a record high, the dollar sank again, and consumers stopped buying pretty much everything.
Stocks kept gyrating, too, Thursday, swinging between gloomy recession evidence and rising hopes that all the bad news would bring another aggressive cut in interest rates when the Fed- eral Reserve meets next week.
The Bush administration, conceding that the economy is facing "difficult" times now, rushed out new proposals aimed at next time -- plans to fix various problems that have led to a severe crisis in credit markets.
Administration officials predicted an economic rebound once the impact of the Fed's credit cuts and the recently passed eco- nomic stimulus package begin to be felt.
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Private analysts were not as confident, worrying that the economy is being hit by multiple blows and noting that some of the problems, such as plunging home sales and mortgage defaults, are showing no signs of abating.
"We're in the belly of the recession beast right now and all we really can do is take defensive action," said Bernard Baumohl, managing director of the Economic Outlook Group.
The Commerce Department reported that consumers, battered by falling home values, job losses, soaring energy costs and a severe credit squeeze, stopped going to the malls in February, triggering a 0.6 percent drop in retail sales.
That was the second big drop in retail sales in the past three months, a pattern consistent with the onset of a recession. Sales were down across a broad swath of the economy, from autos and furniture to appliances.
Consumer spending accounts for two-thirds of economic activity, and many economists believe the country is in recession or soon will be.
At the White House, deputy press secretary Tony Fratto said the Bush administration expected a "difficult and challenging" period. But he also said U.S. residents should have confidence in the long-term future of the economy because of the positive impact of the Fed's rate cuts and the eco-nomic stimulus package that will send rebate checks to 130 million households starting in May.
Bush is headed to New York today to de- liver a speech on the economy.
"I think it's important for the president to get out and talk about how he sees the economy, and why he sees the economy improving as the year goes on," Fratto said. But he conceded that surging energy prices were acting as a drag and "higher oil prices and higher gasoline prices are not going to go away overnight."
Northern valley gas above U.S. average
Indeed, crude oil and gasoline prices hit all-time highs Thursday with crude closing at $110.33 per barrel on the New York Mercantile Exchange. Gasoline prices jumped 2.1 cents a gallon overnight to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service. Analysts forecast that gasoline prices will keep climbing.
Gas prices are even higher in the Northern San Joaquin Valley. In Modesto, for example, gas prices were an average of $3.51 a gallon Thursday, down from $3.53 a day earlier. Statewide, the average was $3.60, down a penny from Wednesday.
The dollar, meanwhile, dropped anew as global investors worried about the length and severity of any U.S. downturn. The dollar dropped below 100 Japanese yen for the first time since November 1995. It traded as low as 99.75 yen before recovering some ground to change hands at 102.04 yen, unchanged from Wednesday.
The euro rose to a new high of $1.5625 after a report that showed U.S. retail sales fell in February, beating a day-old record of $1.5559. It later fell back to $1.5587 in late New York trading, still above the $1.5526 it brought in New York on Wednesday.
Analysts agreed that the dollar was likely to remain weak amid financial market jitters.
At the same time, gold hit a new milestone Thursday, rising to $1,000 an ounce for the first time in futures trading. The price of gold has jumped nearly 20 percent since the start of the year after rising nearly 32 percent in 2007.
The huge advance is mainly the result of a weaker dollar and record-high crude oil prices. Lower interest rates, and the prospect of more cuts, bringing the dollar's value down makes dollar-based commodities such as gold cheaper for foreign buyers. The weak currency has made gold more attractive because the metal is a hedge against inflation.
On Wall Street, stocks slid but then rebounded somewhat as traders grew hopeful about a Fed rate cut Tuesday of one-half point to as much as three-fourths of a point. Investors' moods were bolstered after Standard & Poor's predicted that financial companies are nearing the end of the massive write-downs in the value of subprime mortgages and other assets.
The rating agency estimated that writedowns of subprime asset-backed securities could reach $285 billion globally, up from a previous projection of $265 billion. However, it said that "the end of write-downs is now in sight for large financial institutions."
Changes proposed in housing sector
The worst of the U.S. slowdown has been the housing sector, which has been in a two-year slump that has seen sales and prices plunge in many formerly hot real estate markets. Those declines have shaken consumer confidence and triggered rising mortgage defaults.
The president's Working Group on Financial Markets, led by Treasury Secretary Henry Paulson, put forward a broad blueprint of changes Thursday. The proposals were aimed at correcting abuses from mortgage brokers who pushed prospective buyers into loans they could not afford, Wall Street investment firms that aggressively packaged the mortgages in securities and credit rating agencies that failed to assess the risks those securities carried.
While the recommendations could help prevent a repeat of the current crisis, critics said the administration needed to go much further to stave off an expected tidal wave of foreclosures in coming months.
Nearly 60 percent more U.S. homes faced foreclosure in February than in the same month a year ago, according to a report Thursday from California-based RealtyTrac Inc. Nevada, California and Florida registered the highest foreclosure rates. The Northern San Joaquin Valley is second only to Florida in foreclosures, RealtyTrac reported Thursday.