Nikki Curl in Lansing at the State Capital steps on Sept. 17, 2008. Her mother, with the help of the Moratorium Now! Coalition, saved their home from seizure by Bank of America. (Photo: Abayomi Azikiwe).
Originally uploaded by Pan-African News Wire File Photos
Recession Is Official; Stocks Take a Fall
By MICHAEL M. GRYNBAUM
New York Times
It’s official: for the last year, the United States economy has been in recession, and the markets on Monday acted accordingly. As the trading day ended, the major exchanges were all down more than 7 percent.
The evidence of a recession has been widespread for months: slower production, stagnant wages and hundreds of thousands of lost jobs. But the nonpartisan National Bureau of Economic Research, charged with making the call for the history books, waited until now to weigh in.
In a statement released Monday, the members of the group’s Business Cycle Dating Committee — made up of seven prominent economists, most from the academic sector — said that the economy entered a recession in December 2007.
That was enough to send the Dow Jones industrial average, which had opened the day down 300 points, to more than double down. At the close, the Dow was off about 675 points or 7.6 percent in the last hour. The Standard & Poor’s 500-stock index was down 8.9 percent. The Nasdaq was off 8.9 percent.
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators,” the members said in a statement. “A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”
The committee noted that the contraction in the labor market began in the first month of 2008 and said that the declines in most major indicators, like personal income, manufacturing activity, retail sales, and industrial production, “met the standard for a recession.”
“Many of these indicators, including monthly data on the largest component of G.D.P., consumption, have declined sharply in recent months,” they wrote.
Analysts said that after last week’s gains — the biggest five-day rally in decades — a sell-off was to be expected.
“You had the biggest weekly gain in 30, 35 years,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “Some profit-taking is warranted.”
Still, Monday’s losses were striking. Stocks were dragged down by double-digit declines in shares of financial firms. Citigroup, a source of concern on Wall Street of late, dropped 11 percent; American Express and Bank of America were off about 10 percent.
“Financials led the rally on the way up, and they’re leading on the way down,” Mr. Conroy said.
Investors may also be playing defense ahead of Friday’s report on the job market, one of the most important monthly indicators of the health of the economy. Analysts expect that employers shed more than 300,000 jobs in November, underscoring the problems facing American workers and businesses.
This is the first official recession since 2001, when the economy suffered after the bursting of the technology bubble. The period of expansion lasted 73 months, from November 2001 to December 2007.
Monday brought its own share of poor economic news. The manufacturing industry suffered its worst month since 1982, according to a closely watched index published by the private Institution for Supply Management. The index fell to 36.2 in November from 38.9 in October, on a scale where readings below 50 indicate contraction.
That was the worst monthly reading since 1982, and a sign that the worldwide credit crisis was taking a serious toll on American businesses. New orders fell sharply, although export orders held steady from October.
“However you look at the numbers, the message is the same: manufacturing is in free fall, with output collapsing,” Ian Shepherdson of High Frequency Economics wrote in a note to clients. “We see no prospect for near-term improvement.”
A separate report from the Commerce Department showed that spending on construction projects fell 1.2 percent in October, after staying unchanged in September. Private construction dropped 2 percent with a sharp drop in the residential sector, offering few signs of relief from the housing slump.
The declines on Wall Street came after stocks in Europe and most of Asia moved lower, as investors refocused attention on a gloomy economic outlook.
Benchmark indexes in Paris and Frankfurt were down more than 4 percent, and London’s FTSE-100 dipped 3.6 percent. The declines were minor compared with the 13 percent increase that European stocks enjoyed last week.
“We’re giving back some of the appreciation in equities that we gained in the last few weeks,” said Robert Talbut, a fund manager at Royal London Asset Management.
“I think in terms of valuations there are some good deals starting to appear,” Mr. Talbut said. “But valuations are never enough in themselves.”
Any serious market recovery would require a determined response from global governments, he said, but investors have lots of questions about how the policy measures that have already been announced will work.
Investors were also troubled by mounting evidence that consumer spending in the United States would fall sharply this holiday shopping season, choking off one of the prime fuels of American economic growth. Retailers received more business than expected over the Thanksgiving shopping weekend, but the steep discounts they used to lure customers could undermine profits.
Black Friday sales were 3 percent higher than the year before, according to ShopperTrak, which tracks the industry.
Asian stocks ended mostly lower. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent, while the S.& P./ASX 200 in Sydney fell 1.6 percent.
The Kospi index in Seoul declined 1.6 percent. But the Hang Seng index in Hong Kong rose 1.6 percent, and the Shanghai Stock Exchange composite index rose 1.3 percent.
United States government debt was strong amid the poor economic outlook and expectations that the Federal Reserve would cut interest rates again soon.
The yield on the two-year Treasury note, which moves in the opposite direction of the price, fell to a record just below 0.95 percent, while the yield on the 10-year note fell to 2.86 percent, the lowest on record.
Investors expect the Bank of England, the Reserve Bank of Australia and the European Central Bank to cut interest rates this week amid evidence that inflation is easing and growth flagging. “Evidence continues to build suggesting that these central banks have further aggressive monetary easing to undertake in order to stem the risks of a dramatic shift in price expectations going forward,” Derek Halpenny, a foreign exchange strategist at Mitsubishi UFJ in London, wrote in a note to investors.
The Federal Reserve’s main rate is aimed at 1 percent currently, though the effective rate in the market is 0.5 percent because of the enormous quantity of cash that the Fed has pumped into the market to keep foundering financial institutions afloat.
Crude oil futures for January delivery fell $4.54, to $49.88 a barrel.
David Jolly contributed reporting.
Industrial figures point to deep global downturn
By Chris Giles in London and Geoff Dyer in Beijing
December 1 2008 20:49
Evidence of a global slide to a deep recession mounted on Monday with severe strain reported by manufacturing companies around the world, large falls in car sales across Europe and bad construction figures in the US.
So clear are the signs of a US downturn that the National Bureau of Economic Research, the most prestigious US independent economic authority, said the country has been in recession since December 2007.
The NBER academics define a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators”. They waited until now to be sure the downturn was not a temporary blip.
Most other advanced countries accept they face a severe recession given the consistently and surprisingly bad economic data since mid-September.
Surveys of manufacturing orders in the US, Europe and China published on Monday were much weaker than expected. In China, the purchasing managers index compiled by the government-linked China Federation of Logistics and Purchasing fell from 44.6 in October to 38.8 last month, the lowest reading since the series started in 2005.
The eurozone manufacturing PMI figures hit a series low. In the US, equivalent data from the Institute for Supply Management showed manufacturing activity suffered a further slowdown last month to a 26-year low.
New car sales have slumped across the world. In November, new registrations were 49.6 per cent lower in Spain than a year earlier, 36 per cent off in Sweden, 29 per cent in Japan and 14 per cent in France.
The global weakness hit equity markets with FTSE Eurofirst 300 falling 6 per cent, the FTSE 100 5.2 per cent and the S&P 500 index down over 6 per cent in mid-afternoon trading.
US construction was weak with October spending down 1.2 per cent compared with September.
Volatility reigned on currency markets as investors and traders sought to find safe havens from countries perceived least able to deal with the turmoil.
The pound bore most of the brunt as it was pummelled against the dollar, the euro, and the yen.
Of greater concern to the global economy was the Chinese central bank’s announcement of a relatively big one-day drop in the value of the renminbi against the US dollar.
Copyright The Financial Times Limited 2008
Wall Street falls on economic fears
By Alistair Gray in New York
December 1 2008 19:52
US stocks snapped a five session winning streak on Monday as grim construction and factory activity data revived concerns over the health of the economy.
The health of the economy returned to haunt Wall Street as US stocks snapped a five-session winning streak.
December trading kicked off in a sour mood as traders, upon their return from the Thanksgiving break, were greeted with official confirmation that the economy has been in recession for a year.
Industrials such as Caterpillar, off 6.6 per cent at $38.29, came under particular pressure after Institute for Supply Management data showed manufacturing activity last month contracted at its fastest pace in more than a quarter of a century.
“Nothing like this has ever been seen before in post-second world war history,” said Alan Ruskin of RBS Global Banking & Markets. “The data obviously play to the grain of the short risk trade.”
By mid-afternoon in New York, the benchmark S&P 500 index had overturned more than half of last week’s tenacious gains, down 6.2 per cent to 841.15. The Dow Jones Industrial Average stood 5.2 per cent lower at 8,367.08 and the technology-heavy Nasdaq Composite Index 6.2 per cent weaker at 1,440.03.
The market remained near session lows after Ben Bernanke warned that the Federal Reserve had “obviously limited” scope to lower interest rates, yet may buy Treasury securities to stimulate the economy.
The Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, shot up 17 per cent to 64.66, indicating high levels of distress.
Retailers came under heavy selling pressure in spite of initial reports that “Black Friday” retail sales were not as bad as some had feared. Shoppers spent an average of 7.2 per cent more per person during the four-day holiday weekend, according to the National Retail Federation.
Yet stocks such as Macy’s and Abercrombie & Fitch tumbled 12.5 per cent to $6.49 and 12.2 per cent to $16.97, respectively, as traders remained concerned that, although discounting may have helped drive footfall, the heavy markdowns would hurt margins.
“Even a great Black Friday [the Friday after Thanksgiving in the US and the start of the traditional Christmas shopping season] . . . won’t be enough to save the month,” wrote analysts at JPMorgan, who visited stores across the Atlantic seaboard to monitor shoppers.
Wal-Mart and Target, the discounters, failed to escape the declines, in spite of reports of widespread consumer bargain-hunting, off 3.9 per cent at $53.69 and 9.9 per cent at $30.41, respectively.
Financials led the market retreat, down 10.5 per cent overall. American Express, off 12.7 per cent to $20.36, was among the big losers after Meredith Whitney, analyst at Oppenheimer, issued a bearish note in which she forecast the credit card industry would cut lending by more than $2,000bn over the next 18 months.
“We believe we are now entering a new era in the financial landscape that will be characterised by expanded forced consumer deleveraging, with a pronounced downshift in consumer spending,” she wrote.
Shares in Citigroup, which more than doubled in value last week, lost 16.8 per cent to $6.90.
Meanwhile, the energy sector was one of the biggest losers, down 7.4 per cent, as Opec delayed a production cut until mid-December.
Chipmakers such as Intel, down 6.5 per cent to $12.90, were dragged lower by figures from the Semiconductor Industry Association that showed said global sales fell 2.4 per cent in October.
Elsewhere in technology, a report in The Sunday Times that Microsoft was in talks to buy Yahoo’s online search business for $20bn failed to give the search group a boost after AllThingsDigital quoted Ross Levinsohn, a key internet executive said to be involved in the move, as saying the report was “total fiction”. The search group lost 4.9 per cent to $10.95 and Microsoft 5.7 per cent to $19.06.
Among the few stocks to buck the downward momentum, Mentor jumped 89.4 per cent to $30.58 after Johnson & Johnson agreed to buy the breast implant group for $31 a share in cash, a 92 per cent premium to last week’s close. Johnson & Johnson lost 3.5 per cent to $56.53.
Ford rallied 7.8 per cent to $2.90 after the motor group said it could sell its Volvo division. General Motors, which along with Ford and privately-held Chrysler is due to submit restructuring plans to Congress on Tuesday, lost 4.6 per cent to $5.00.
Copyright The Financial Times Limited 2008
No comments:
Post a Comment