U.S. stocks continue post-election drop

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By David M. Dickson

UPDATE:

The stock market was trading in negative territory through mid-afternoon, following steep declines in Asia and Europe and major interest-rate cuts in Europe.

After falling 486 points Wednesday, the Dow Jones Industrial Average shed another 391 points (4.3 percent) by 2 p.m. Thursday, falling to 8,748. The Standard & Poor's 500 stock index was down 42 points (4.5 percent) to 910, and the Nasdaq composite index lost 62 points (3.7 percent) to reach 1,620 at 2 p.m.

Overnight, Japan's Nikkei 225 index fell 6.5 percent, and Hong Kong's Hang Seng stock index dropped more than 7 percent. In Europe, London's FTSE 100 lost 5.7 percent Thursday, France's CAC 40 gave up 6.4 percent, and Germany's DAX stock index declined 6.8 percent.

On the edge of Britain's first recession since 1991, the Bank of England reduced its target interest rate by 1.5 percent Thursday to 3 percent, its lowest level since 1955. It was the steepest cut in 16 years.

It's absolutely staggering and deeply impressive, Brian Hilliard, director of economic research at Societe Generale in London, told Bloomberg News. They are clearly grasping the nettle taking deep action. Boy, this is going to have an impact.

The European Central Bank chopped a half-point off its target short-term interest rate, which dropped to 3.25 percent. It was the ECB's second rate cut in less than a month. Economists believe that the euro region's economy has already dipped into a recession, and ECB President Jean-Claude Trichet said he could not rule further interest-rate cuts. Switzerland's central bank reduced its policy rate by a half-point to 2 percent.

In the United States, the number of people collecting unemployment benefits jumped to 3.84 million in late October, reaching the highest level since February 1983, the Labor Department reported Thursday morning. The increase in the total was 122,000.

In February 1983, when the unemployment rate was 10.3 percent, the economy was in the initial stages of recovery from its worst post-World War II recession. The September 2008 unemployment rate was 6.1 percent. Many economists believe U.S. economy has fallen into recession, and several have predicted the unemployment rate will peak above 8 percent.

The Labor Department also reported Thursday that new applications for unemployment benefits dipped by 4,000 to 481,000 during the last week of October. The latest number of new applications remains at an elevated level, another fact suggesting the U.S. economy has dipped into recession.

Last week, the Commerce Department reported that the U.S. economy declined by an annual rate of 0.3 percent during the third quarter as personal consumption fell for the first time since 1991.

On Friday, the Labor Department will report jobless data for October. In a research note Wednesday, Goldman Sachs economists predicted that payrolls declined by 300,000 jobs in October. Since the beginning of the year, employers have reduced payrolls by nearly 800,000 workers. Jobs have declined for nine months in a row. The decline in September was 159,000, by far the largest monthly dip of the year so far.

Unfortunately, there is no guarantee that the October decline in payroll employment will be the worst of this cycle, the Goldman Sachs report said.

Meanwhile, productivity in the business sector increased at a 1.3 percent annual rate during the third quarter, the Labor Department reported Thursday. Manufacturing productivity declined at a 1 percent rate, and productivity in non-durable goods (clothes, for example) manufacturing plunged at a 7.3 percent annual rate.