- The Washington Times - Wednesday, January 7, 2009

UPDATED:

Recession reality hit Wall Street Wednesday with poor corporate earnings and unemployment reports that may signal worse to come, prompting sell-offs that erased gains made this year.

The Nasdaq dropped below 1,600 and two of the three major indexes fell more than 3 percent. But all three came off their lows in late trading.

At the close, the Dow Jones Industrial Average plunged 245.16, or 2.72 percent, to 8769.94, its worst day since Dec. 9. The tech-heavy Nasdaq fell 53.32, or 3.23 percent, to 1599.06, the worst one-day drop since Dec. 11. The broader Standard & Poor’s 500 dived 28.04, or 3 percent, to 906.66 for its worst day since Dec. 1.

In a bright spot for motorists, the price of crude oil dropped 12 percent on a report of bigger-than-expected U.S. inventories. Energy stocks fell.

What appeared to spur the sell-off were negative earnings reports from such corporate giants as Intel Corp. and Time Warner Inc. plus a report saying the private sector lost nearly 700,000 jobs in December. That foreshadowed Friday’s government employment report that could bring worse news than expected.

Those poor earnings reports may be an early warning of more of the same from other companies in the months to come. They are certain to put a brake on a rapid Wall Street comeback. Reports from the retail sector were due Thursday.

In addition, the Congressional Budget Office projected an unprecedented budget deficit of nearly $1.2 trillion this budget year, predicted the economy will shrink by 2.2 percent in 2009 and said unemployment could surpass 9 percent by early 2010 if the incoming Obama administration does not come up with a rescue plan.

President-elect Barack Obama is working with Congress on an economic stimulus plan that could total $800 billion, $300 billion of which would be devoted to tax cuts for middle-income earners. Another portion will be earmarked for the creation of 3 million jobs.

“If we continue to do nothing,” Mr. Obama said about the anticipated deficit at a news conference, “then we will continue to see red ink as far as the eye can see.”

“They’re going to throw the kitchen sink at the economy,” Ken Goldstein, an economist with The Conference Board, told The Washington Times.

For Wall Street, the significance of job losses rests largely on the amount of money that can be pumped into the economy. The fewer the jobs, the less money there will be for consumers to spend. Even fear of job losses can keep people from spending because of the perceived need to save for anticipated emergencies.

The ADP National Employment Report, which is based on payroll information, said the private sector dismissed 693,000 workers on a seasonally adjusted basis in December, more than the 476,000 such jobs lost in November.

In another report, a private outplacement company, Challenger, Gray and Christmas, announced that the number of job cuts dropped 8.4 percent in December from November. But the total was nearly four times what it had been in December 2007.

The 166,348 announced job cuts were the most for a December since the company started keeping records in 1993. The number of dismissals in November was 181,671, a seven-year high.

Further, employers announced 1,223,993 job cuts in all of last year, a 59 percent jump from 2007 and the biggest number since 2003, Challenger said.

The Labor Department is to release its employment report for December Friday. It is expected to show an increase from the 475,000 jobs lost in November, which boosted the countrys unemployment rate to 6.7 percent.

On the corporate front, bellwether Intel Corp., the Santa Clara, Calif.-based chip maker, announced it expects its fourth-quarter revenues to fall 23 percent from the same period last year because of slowing demand — to $8.2 billion, down from the expected $8.74 billion forecast by Thomson Reuters.

The company ships about 80 percent of the worlds microprocessors, the chips that run computers.

Time Warner said it expects to record an operating loss for the September-through-December period and for the entire year because of a $25 billion impairment charge for its AOL, cable and publishing divisions. It had expected a profit of at least $1.04 per share.

Share prices for both Intel and Time Warner fell.

The decision announced Tuesday by aluminum giant Alcoa Inc. to slash 13,500 jobs, or 13 percent of its workforce, apparently weighed heavily on the markets because it served as a reminder of the worldwide recession, including worsening unemployment in Germany, Europes biggest economy.

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