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Economic woes spread across nation
The credit crisis that exploded last month left a blast crater in an already sinking economy, and some of the victims emerged to tell their tales Wednesday.
Thousands of finance jobs were lost from the New York epicenter, where Wall Street firms folded en masse, to the West Coast, where two major banks were closed.
Sales at Ford, Chrysler and other automakers plummeted by a third as customers and dealers reported being unable to get loans — threatening the already teetering finances of Detroit's Big Three.
U.S. manufacturing — which was kept afloat by robust exports earlier this year — sank into recession as companies shut off orders, an industry group reported, while Washington's airport authority and other municipalities and corporations said they had to postpone projects financed by bonds.
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"Welcome to the recession," said Daniel North, chief economist for credit insurer Euler Hermes ACI. "The combined weight of high energy prices and a ruined housing market is now being compounded by the ever-worsening conditions in the credit markets."
Every industry from manufacturing and housing to services was hit by record declines last month in a credit manager's index that Mr. North compiles, with businesses using words like "tough" and "brutal" to describe conditions in their areas, he said.
"No one will lend for fear that the financial system is on the verge of a meltdown," he said. "The credit markets need a big shot of confidence to be unclogged."
Ford Motor Co. reported a 34 percent plunge in September sales from a year ago, while Chrysler sales tumbled 33 percent and Japan's big three automakers — Toyota, Honda and Nissan — reported similar drops. GM bucked the trend with a milder 16 percent decline, thanks to its offer of employee pricing on cars.
"It was tantamount, really, to a natural disaster," said George Pipas, a Ford sales analyst, adding that sales were "extremely weak" at the end of the month when the impact from the credit crisis on Wall Street filtered down to Main Street.
Nine in 10 auto sales are financed with loans, which have become harder to get. Many consumers who hoped to use home-equity loans to purchase cars have seen their credit lines reduced or shut down. Even consumers with good credit ratings have been reluctant to buy cars in the uncertain economic environment, the car companies said.
Surging borrowing costs may cause a 40 percent increase in dealer closures this year as auto companies encounter difficulty securing short-term financing for their inventories of new cars, according to the National Automobile Dealers Association.
Automakers, who are calling for congressional action on the bank bailout bill, claim that one in 10 U.S. jobs is directly or indirectly created by their industry. The industry already secured a $25 billion federal loan in appropriations legislation passed this week.
The story was just as gloomy for the broader manufacturing sector, where activity fell to recession levels last month, according to an index published Wednesday by the Institute for Supply Management.
"Manufacturing is falling off a cliff," with even the previously strong export sector now in decline, said Harm Bandholz, economist at UniCredit Markets. He predicted the "broad-based weakness" will prompt both Congress and the Federal Reserve to take action to aid the economy soon.
Online job advertisements fell by 216,000 last month, possibly foreshadowing an abysmal jobs report from the Labor Department on Friday, the Conference Board said.
The retrenchment by employers was widespread and suggests that "employment will deteriorate even more rapidly" in the months ahead, said Gad Levanon, an economist at the New York business group.
Already, 136,000 finance jobs have been lost through August, with big losses concentrated in California, New Jersey, Florida, New York and Michigan, where the housing and credit crisis has been most intense.
"As the credit crisis ripples through the entire national financial sector, individual states are very much at risk for further layoffs," particularly New York, said Karl Kuykendall, economist with Global Insight.
"The investment banking industry, in particular, has undergone tremendous adversity of late that has already transformed the industry. Thousands more layoffs are expected to follow," he said.
The credit crisis is hitting companies big and small as they attempt to roll over debts or raise money for new projects in stressed credit markets.
Duke Energy Corp., a large Southern energy producer, said it is drawing on a bank credit line to avoid having to issue $1 billion in bonds in today's brutal market conditions.
Major corporations such as Duke have an estimated $6 trillion in credit lines at banks, which they are increasingly tapping as they are unable to raise funding directly in the markets. But analysts say the draw on credit lines could eventually become yet another burden for struggling banks, which are having their own troubles raising cash in the credit markets.
State and local governments also are encountering hardship trying to raise money to build schools, roads and bridges. Louisiana had to postpone a $500 million bond offering, while Chicago is putting off school building projects.
The Metropolitan Washington Airports Authority postponed a $175 million bond offering this week and deferred $2.2 billion in capital projects last month, including a new concourse and consolidated rental-car facility at Washington Dulles International Airport. Its announcement cited "current economic conditions" as well as deteriorating finances at airlines hit hard by high fuel costs.
Robust growth in state and local construction had been one of the only bright spots in the weakening economy earlier this year, but the credit woes means that point of strength is now threatened, economists said.
One of the only success stories this week was General Electric Co., which reported that it smoothly rolled over its short-term debts in the commercial paper market at the end-of-quarter deadline Tuesday without having to tap bank credit lines.
The giant conglomerate, one of only five corporations worldwide with a AAA rating, nevertheless continued to be hounded by worried investors, who drove the company's stock 9 percent lower Wednesday.
GE was rewarded, however, with a $3 billion cash infusion by billionaire investor Warren Buffett, who took advantage of GE's low stock price to purchase a stake in the company.
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