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Economic Pessimism Sends Stock Markets Tumbling

Filed by KOSU News in Business.
August 4, 2011

At one point this morning, the Dow Jones industrial was down 350 points, mirroring the drop in Standard & Poor’s and most stock markets in Europe. As the Los Angeles Times puts it, today the market came down from yesterday’s U.S. rally as pessimism “about the economy overtook investors around the globe.”

The Times reports:

Before trading opened on Wall Street, the Labor Department announced that the number of people applying for unemployment benefits last week fell slightly from the week before. But the report, following a raft of disappointing economic data in recent days, was taken by many gloomy investors to indicate only that the stalled job market is not improving.

Some investors also are selling to protect their portfolios before Friday’s monthly announcement of unemployment data.

For the rest of the day, expect some wild swings. Dow Jones Newswires reports that the markets were “primed for another volatile session.”

Here’s one financial strategist describing the mood to Bloomberg:

“The mood right now is gloomy,” Mike Ryan, the New York- based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “The burden of proof is for better data that show the economy is not falling into recession. Tomorrow’s payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here.”

Update at 12:04 p.m. ET. ‘On The Cusp Of Recession’?

As The New York Times puts it, one thing haunting the markets right now is a fear that the United States is sliding back into a recession. Yesterday, U.S. News & World Report looked into the possibility of a double dip recession.

Essentially, they report, the economy has barely grown in 2011. During the first quarter the GDP grew by .4 percent and by 1.3 percent during the second quarter. If you remember that second quarter number was recently revised downward from close to 2 percent.

“We’re on a knife edge right now,” Justin Wolfers, associate professor of business and public policy at The Wharton School of the University of Pennsylvania, told U.S. News. “We’re on the cusp of recession. We maybe already have had one —that’s really just one data revision away.”

The White House’s Press Secretary Jay Carney dismissed the threat during his press briefing, yesterday. He said:

Well, we do not believe that there is a threat there of a double-dip recession. We believe that the economy will continue to grow. There is no question that growth has slowed over the past two quarters. There’s no question that job creation has slowed. But there are reasons for that –again, some of them beyond our control — but that are beginning to — the headwinds created by them like the earthquake in Japan, have subsided somewhat. But there are other challenges that we have to contend with, including high energy prices, the situation in Europe, et cetera.

Harvard University economics professor Martin Feldstein told Bloomberg earlier this week that he sees a 50 percent chance that the U.S. economy will slide into recession:

Feldstein cited continued weakness in housing and employment. U.S. consumer spending unexpectedly dropped in June for the first time in almost two years, Commerce Department figures showed today in Washington.

“Nothing has given us much growth,” Feldstein said. “The economy has been flat to down since the beginning of the year.”

[Copyright 2011 National Public Radio]

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