[Marxism] Dow Plunges 680 Points as Recession Is Declared

[Louis Proyect]

NY Times, December 2, 2008
Dow Plunges 680 Points as Recession Is Declared
By MICHAEL M. GRYNBAUM

The evidence of a recession has been widespread for months: slower 
production, stagnant wages and hundreds of thousands of lost jobs.

But the nonpartisan National Bureau of Economic Research, charged 
with making the call for the history books, waited until now to make 
it official — and the announcement came on a day when the American 
stock market fell nearly 9 percent in a single session.

The sharp declines on Wall Street — the Dow Jones industrial average 
dropped 679.95 points or 7.7 percent — appeared more about 
profit-taking than the economy. Investors have long assumed that the 
country was in recession, and analysts said that after last week's 
gains, including the biggest five-day rally in decades, a sell-off 
was to be expected.

Still, Monday's losses were striking, and they reminded investors 
that nothing can be predicted in today's environment. The major 
indexes fell by hundreds of points from the start, led by huge 
declines in shares of financial firms. Citigroup, Merrill Lynch and 
Morgan Stanley shares all dropped nearly 20 percent. Most other major 
Wall Street banks were also in double-digit percentage declines.

"Financials led the rally on the way up, and they're leading on the 
way down," said Anthony Conroy, head equity trader at BNY ConvergEx Group.

The broader Standard & Poor's 500-stock index was down 8.9 percent, 
and the Nasdaq fell 8.95 percent.

The S.&P. and the Dow are back to their levels of last Monday, 
erasing nearly four days of gains.

Crude oil futures for January delivery settled Monday at $49.34 
barrel, down $5.09. in New York trading.

Some hedge fund and mutual fund managers, anticipating big redemption 
requests from clients, may have seen last week's rally as a good 
point to unload assets at a decent price. Other investors may have 
been spooked by a spate of poor economic news, including the worst 
reading on the health of the manufacturing industry since 1982.

Investors may also be playing defense ahead of Friday's report on the 
job market, one of the most important indicators of the health of the 
economy. Analysts expect that employers shed more than 300,000 jobs 
in November, underscoring the problems facing American workers and businesses.

It is also somewhat remarkable that on one of the worst days in the 
history of the stock market, there was no panic to be seen on Wall 
Street. In six and a half hours, the S.&P. declined more than 8 
percent — the type of collapse that historically has taken years to 
occur. But in the new Wall Street, the reaction was quiet.

"Investors have slowly become accustomed to it, after seeing it day 
after day for month after month," said Todd Salamone, an analyst at 
Schaeffer's Investment Research. "A year ago, an 8 percent move would 
have raised a lot more eyebrows than it does today."

The difference, of course, is that the country entered a recession 
exactly one year ago, at least according to the Business Cycle Dating 
Committee, which is made up of seven prominent economists, most from 
the academic sector. The group made their official announcement on 
Monday that the economy entered a recession in December 2007.

"A recession is a significant decline in economic activity spread 
across the economy, lasting more than a few months, normally visible 
in production, employment, real income, and other indicators," the 
members said in a statement. "A recession begins when the economy 
reaches a peak of activity and ends when the economy reaches its trough."

The committee noted that the contraction in the labor market began in 
the first month of 2008 and said that the declines in most major 
indicators, like personal income, manufacturing activity, retail 
sales, and industrial production, "met the standard for a recession."

"Many of these indicators, including monthly data on the largest 
component of G.D.P., consumption, have declined sharply in recent 
months," they wrote.

This is the first official recession since 2001, when the economy 
suffered after the bursting of the technology bubble. The period of 
expansion lasted 73 months, from November 2001 to December 2007.

The manufacturing industry suffered its worst month since 1982, 
according to a closely watched index published by the private 
Institution for Supply Management. The index fell to 36.2 in November 
from 38.9 in October, on a scale where readings below 50 indicate contraction.

That was the worst monthly reading since 1982, and a sign that the 
worldwide credit crisis was taking a serious toll on American 
businesses. New orders fell sharply, although export orders held 
steady from October.

"However you look at the numbers, the message is the same: 
manufacturing is in free fall, with output collapsing," Ian 
Shepherdson of High Frequency Economics wrote in a note to clients. 
"We see no prospect for near-term improvement."

A separate report from the Commerce Department showed that spending 
on construction projects fell 1.2 percent in October, after staying 
unchanged in September. Private construction dropped 2 percent with a 
sharp drop in the residential sector, offering few signs of relief 
from the housing slump.

The declines on Wall Street came after stocks in Europe and most of 
Asia moved lower, as investors refocused attention on a gloomy 
economic outlook.

Benchmark indexes in Paris and Frankfurt were down more than 4 
percent, and London's FTSE-100 dipped 3.6 percent. The declines were 
minor compared with the 13 percent increase that European stocks 
enjoyed last week.

"We're giving back some of the appreciation in equities that we 
gained in the last few weeks," said Robert Talbut, a fund manager at 
Royal London Asset Management.

"I think in terms of valuations there are some good deals starting to 
appear," Mr. Talbut said. "But valuations are never enough in themselves."

Any serious market recovery would require a determined response from 
global governments, he said, but investors have lots of questions 
about how the policy measures that have already been announced will work.

Investors were also troubled by mounting evidence that consumer 
spending in the United States would fall sharply this holiday 
shopping season, choking off one of the prime fuels of American 
economic growth. Retailers received more business than expected over 
the Thanksgiving shopping weekend, but the steep discounts they used 
to lure customers could undermine profits.

Black Friday sales were 3 percent higher than the year before, 
according to ShopperTrak, which tracks the industry.

Asian stocks ended mostly lower. The Tokyo benchmark Nikkei 225 stock 
average fell 1.4 percent, while the S.& P./ASX 200 in Sydney fell 1.6 percent.

The Kospi index in Seoul declined 1.6 percent. But the Hang Seng 
index in Hong Kong rose 1.6 percent, and the Shanghai Stock Exchange 
composite index rose 1.3 percent.

The yield on the two-year Treasury note, which moves in the opposite 
direction of the price, fell to a record just below 0.95 percent, 
while the yield on the 10-year note fell to 2.86 percent, the lowest on record.

David Jolly contributed reporting.