- The Washington Times - Friday, January 30, 2009


Wall Street sank Friday largely in reaction to the government reporting a 3.8 percent annual rate of decline in the economy in the fourth quarter of 2008 that highlighted fears of a worsening recession.

Two of the three major indexes fell more than 2 percent, the tech-heavy Nasdaq dropped below 1,500 and the Dow barely maintained its 8,000 level.

At the close, the Dow Jones Industrial Average plunged 148.15, or 1.82 percent, to 8000.86, the Nasdaq dived 31.60, or 2.08 percent, to 1476.42 and the broader Standard & Poor’s 500 fell 19.24, or 2.28 percent, to 825.90.

Another drag on the markets, led by the financial sector, appeared to stem from reports on CNBC that the Obama administration may be having second thoughts about creating a government-run “bad bank” to assume the debts of banks that have incurred mounting losses because of the economic crash in September.

The markets initially reacted positively to the Commerce Department report that the nation’s economy shrank at an annual rate of 3.8 percent in the final three months of last year because economists had expected the gross domestic product to show a contraction of at least 5.4 percent.

The GDP is the total of all goods and services produced by the economy.

But the markets turned negative after the first half hour when investors began digesting the meaning of the report, which marked the worst showing for the economy since the first quarter of 1982, when the economy was in recession.

“At first blush, the numbers looked good,” Robert J. Barbera, the chief economist at Investment Technology Group, of New York, told The Washington Times. But, he said, “the devil was in the details, and they were all devilish.”

Among the details were major drops in exports, business investment and residential investment and consumption, he said.

Ken Goldstein, economist at The Conference Board, also in New York, told the Times, “The realization is sinking in that this is an extremely intense recession that’s not going to let up during the first half of the year.

“This thing could feed on itself and just spiral down — that’s how close we are.”

To a depression?

“We’re uncomfortably close to there,” he replied.

But, he said, there is no accurate definition of a depression except when it comes to the number of unemployed, which now stands officially at 7.2 percent. The unemployment rate was 25 percent at the height of the 1930s Great Depression.

Concerns about corporate earnings also weighed down the markets even as Exxon Mobil Corp. announced that it broke its own record of profits for all of 2008 with a $45.2 billion showing.

But the company’s profits dropped 33 percent in the fourth quarter because the price of oil plunged from its high of $147 a barrel in July.

The price of a barrel of light, sweet crude rose Friday to more than $42 on the New York Mercantile Exchange.

Corporate earnings, whose generally poor showings in the recession-ridden economy have been a drag on the markets — especially those in the financial sector — were a mixed bag Friday.

Giant Proctor & Gamble Co., which makes everything from Crest toothpaste to Tide detergent, reported a 53 percent jump in profit in the October-to-December period, in part because of its sale of Folgers coffee.

But Honda Motor Co. said its earnings plunged by more than 90 percent in the quarter and cut back its profit outlook for this year.

Good news came from Amazon.com Inc. after the markets closed Thursday, reporting that its fourth quarter profits jumped 9 percent, surpassing economists’ forecasts. Its outlook for this year was optimistic.

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