Monday, June 9, 2008

Recession fears as US markets dive

Recession fears as US markets dive

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US stocks have suffered their worst day for 15 months after the government said unemployment had risen by the biggest rate in more than 20 years.

Rocketing oil prices have also fuelled concerns that the US economy is facing 'stagflagation' - slow growth and high inflation accompanied by soaring oil prices.

Oil prices reached a $139 a barrel on Friday, fuelled by a weak dollar and tensions in the Middle East.

The Dow Jones industrial average tumbled 394.64 points, or 3.13 per cent, to end Friday at 12,209.81.

Shares in General Electric and other major firms fell after a report showed unemployment rose in May to 5.5 per cent from 5 per cent, its highest level since October 2004.

Analysts say stagflation, last seen during the worldwide economic slump in the 1970's, could make it even more difficult to boost a sputtering economy.

"This is the worst economic environment," Dave Rovelli, the managing director of Canaccord Adams, a New York equity trading firm, said.

"I don't see how this is not stagflation."

Jobless rate rises

The US reported on Friday that about 49,000 jobs had been lost, putting the current number of unemployed in the US at 8.5 million.

A total of 324,000 jobs have been lost in 2008 so far, the department said.

The figure surprised analysts, who had expected a more modest rise of 0.1 per cent.

The news comes at a time of ongoing financial turmoil in the US housing, credit and financial sectors.

The White House acknowledged that the number was "too high" but Scott Stanzel, the deputy press secretary, said it was still "lower than the average of the last three decades".

Analysts say the rate is expected to rise to six per cent or higher by next year.

The official unemployment rate, taken from a separate survey of households, includes workers who are actively seeking a job and can rise as jobless workers who had given up on looking for new work then begin searching again.

Recession fears

Continuing job losses have led some economists to say the US is in recession, although others have said far more jobs - 100,000 or more - are normally lost each month during a recession.

"For the average American there is not a debate that the economy is in a recession,'' Mark Zandi, chief economist at Moody's Economy website, told the Associated Press news agency.

"That's because their net worth is lower, their purchasing power is lower and it is tough to find a job. If you lose a job, it is tough to get back in."

The US Federal Reserve and the Bush administration are hoping recent steep rate cuts by the central bank and the US government's $168bn stimulus package, which provides tax rebates and business tax breaks, would revive the US economy in the second half of this year.

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