- The Washington Times - Monday, December 1, 2008

Confirmation that the American economy is in recession with signs of worse to come combined with two negative economic reports today to send the stock markets into freefall, erasing most of last week’s gains.

The Dow was down nearly 700 points at the close.

The day started badly because investors didn’t look optimistically on a report by RCT ShopperTrak saying Black Friday sales at more than 50,000 outlets rose 3 percent to $10.6 billion. The problem: there was no immediate data for Saturday as well, and investors expected the worst.

Then came two pessimistic reports. Then a private group of economists made official what Americans have known for weeks, if not longer, about the state of the economy; it’s in recession.

The National Bureau of Economic Research said the United States has been in a recession since December 2007 because of the deterioration of the labor market throughout this year.

Employers cut payrolls by 1.2 million jobs in the first 10 months of 2008. Economists have predicted the loss of another 325,000 for November.

As if endorsing the view, Wall Street got walloped with a double whammy today as investors nervous about the holiday shopping season were hit with two economic reports whose figures were lower than expected.

Investors couldn’t help but recognize the shortfalls, and the markets got a thumping.

At the close, the Dow Jones Industrial average swooned 674.62, or 7.64 percent, to 8154.42. The tech-heavy Nasdaq was off 8.95 percent, or 137.50, to close at 1398.07, and the broader Standard & Poor’s 500 dropped 80.06, or 8.93 percent, to 816.18.

U.S. manufacturing fell to its lowest point in 26 years in November as new orders dropped for the 12th consecutive month, the Institute for Supply Management said.

Its monthly index of manufacturing activity fell to 36.2 from October’s 38.9. Wall Street had expected 38.4. A number below 50 indicates that the sector is contracting.

The reading marked the lowest since May 1982.

The Commerce Department reported that construction spending dropped by a larger-than-expected amount in October, a further indication that builders are facing worsening problems in the construction of homes, hotels and other projects.

Spending fell by 1.2 percent in October, much more than the 0.9 percent decline that many analysts had expected.

The NBER is a group of leading economists who fix the start and end dates of economic downturns.

The group not only focuses on jobs but looks at gross domestic product, real personal income, industrial production and wholesale and retail sales. All of those measures reached their high point between November 2007 and June 2008, NBER said.

Some believe that a recession is defined by two consecutive quarters of negative economic activity. That has not happened in this recession.

The previous two recessions - in 2001 and between 1990 and 1991 - lasted eight months each.

The only good news came for American motorists with another drop in the price of oil, down $5.15 to $49.28 a barrel on the New York Mercantile Exchange.

White House Deputy Secretary Tony Fratto said that despite the recession being official, it is more important to focus on steps to fix the economy.

“The most important things we can do for the economy right now are to return the financial and credit markets to normal and to continue to make progress in housing, and that’s where we’ll continue to focus,” he said.

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