- The Washington Times - Wednesday, September 4, 2002

Stocks nose-dived yesterday on signs that the recoveries in manufacturing and technology were stalling, raising worries the economy might be heading for another slump.
The Dow Jones Industrial Average fell 355 points to 8,308, and the Nasdaq Composite Index and Standard & Poor's 500 Index dropped by close to 4 percent. Stocks also were hit by downgrades of Citigroup, Ford, Intel and other big-name companies.
"It was a day with no redeeming qualities. We started down the first minute, and we never looked back," said Larry Wachtel, market commentator with Prudential Securities. He noted the "malaise" at the start of trading caused by Japan's main stock index falling to a 19-year low and big losses in European stocks overnight.
The stock slide accelerated when Prudential recommended selling Citigroup shares, citing likely losses in Brazil and from Enron shareholders seeking compensation for the company's role in hiding the energy company's massive debts.
The first sell rating on the nation's largest bank dragged down all financial stocks. Automobile stocks were hit by a downgrade of Ford Motor Co., which cited its losses in the stock market and erosion of market share.
A report predicting a retrenchment in revenue at technology bellwether Intel sent tremors through the sector, confirming fears that the budding recovery was facing setbacks.
The stall in technology and manufacturing was confirmed by a report from the Institute for Supply Management showing the first drop in new orders for equipment since November something the institute called a "warning" of rough times ahead for U.S. industry.
"It's clear the manufacturing side of the economy continues to flirt with recession, if they're not back in recession," Mr. Wachtel said.
While the news stopped short of signaling a double-dip recession for the broader economy, it undercut hopes that inspired three weeks of gains and drove away buyers, he said. Four stocks declined for every one that rose.
"People are in a gloomy mood," amid talk of war in Iraq, fears of further terrorist attacks and wariness about a history of stock losses during September, he said.
Ironically, news that tensions with Iraq were at least temporarily defused by Iraqi President Saddam Hussein's willingness to allow U.N. weapons inspectors back into the country deflated oil company stocks and contributed to the stock drubbing.
"It is not a pretty picture," said Mace Blicksilver, analyst at Marblehead Asset Management, noting that the pain was particularly acute among industrial stocks.
"I don't know what is on the horizon that could be a bullish impetus," he said.
Mr. Blicksilver and other stock analysts said the lack of good news to inspire the market could prompt major stock indexes this month to fall back toward the five-year lows from July.
Economists worry that a renewed recession in manufacturing could drag down the rest of the economy if it results in additional layoffs and losses of income for consumers. Last month, a cutback in manufacturing hours caused a rare drop in U.S. wages overall, threatening consumers' wherewithal to spend.
Planned job cuts last month surged 46 percent to 118,067, said Challenger, Gray and Christmas, a Chicago firm that tracks mass layoffs.
The rate of layoff notices this year trails the highs during last year's recession but could make 2002 the second-worst year for job losses, said President John Challenger.
He attributed last month's job reduction to the "directionless" recovery, which is causing caution and cost-cutting among employers.
"We've lost a lot of momentum" since the beginning of the year, when the economy grew at a heady 5 percent annual rate, said Norbert Ore, director of the manufacturing institute survey. Economists say the Federal Reserve is likely to be troubled by the industrial setback documented by the institute.
Edward Yardeni, Prudential's chief investment strategist, said the lull in manufacturing may be temporary the result of corporate chief executives distracted by their obligation to fulfill the Securities and Exchange Commission's new disclosure mandates.
With the Aug. 14 filing deadline behind them, executives may be free to turn their attention to spending on new equipment, he said.
A recent poll conducted by Mr. Yardeni projects a 5 percent rise in such investment spending in the next year.
But Mr. Yardeni says he expects sluggishness to persist among technology companies. Even a modest return of business investment spending will not be enough to restore the vivacious growth rates of the 1990s, he said.

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