[Marxism] Goldman-Sachs: Really nasty news

Louis Proyect lnp3 at panix.com
Sat Jun 7 08:26:18 MDT 2008


Record Oil Spike, High Jobless Rate Sink Stock Market
Dow's Plunge Casts Doubt on Recovery

By Steven Mufson and Neil Irwin
Washington Post Staff Writers
Saturday, June 7, 2008; A01

A soaring jobless rate, an unprecedented jump in oil prices and a 
sliding dollar sent tremors through financial markets yesterday and 
cast fresh doubt on how soon the U.S. economy would be able to break 
out of a pattern of feeble growth and financial instability.

The nation's unemployment rate shot skyward last month to 5.5 
percent, the biggest leap in more than two decades, and crude oil 
prices rocketed up $10.75 a barrel, sending U.S. stock markets 
tumbling and shaking the economic and political landscape just as the 
general election season begins.

It was one of the worst days of economic news in a year already 
well-stocked with disappointment. The Dow Jones industrial average 
reacted by plunging 394.64 points, or 3.13 percent, its sharpest 
decline since Feb. 27, 2007. Other major indicators also dropped 
about 3 percent.

"Today's events are a combination of really nasty news for American 
consumers," said Andrew Tilton, a senior economist at Goldman Sachs.

Crude oil prices hit a new trading record of more than $139 a barrel 
before settling at $138.54. This more than erased a drop earlier in 
the week and promised further increases in motor fuel prices. The 
nationwide average is already just a penny shy of $4 a gallon for 
regular gasoline.

The one-day increase in crude prices was the biggest ever in dollar 
terms, the largest in percentage terms since June 1996 and more than 
the cost of an entire barrel a decade ago.

Meanwhile, the jobless rate for May was up 0.5 percentage points from 
April, the Labor Department said, the largest swing in a single month 
since 1986. The number of jobs on employers' payrolls fell by 49,000, 
the fifth consecutive monthly decline for an economy that has shed 
324,000 jobs this year. Joblessness rose across race and gender. 
Professional, commercial, construction, business service and 
manufacturing employers all cut jobs.

"When you have an employment situation like that, and you see crude 
bounce . . . that's shocking to anything that's going to touch the 
consumer," said Bart Barnett, head of equity trading at Morgan 
Keegan, an investment and brokerage firm. "Outside of anything to do 
with oil, everything is down -- airlines, restaurants, furniture 
stores, retailers, transportation."

Much of the spike in unemployment was caused by an unusually large 
surge of teenagers and people in their 20s into the labor force. And 
those young workers had little success finding work. The jobless rate 
among 16- to 19-year-olds rose to 18.7 percent from 15.4 percent in 
April. Retailers, who employ a large number of unskilled teenagers 
during the summer, cut 27,000 positions in the month.

Rising unemployment, however, spread well beyond young people. The 
jobless rate rose among almost every other group -- men, women, 
blacks and whites. The rate was unchanged among Latinos.

At the same time, average weekly earnings for non-managerial workers 
appeared to lose ground to inflation, rising only 3.2 percent in the 
year that ended in May. Analysts expect this to be less than 
inflation over the same time span. That inflation figure has not yet 
been released.

"It's crystal clear that the economy is not generating the job and 
income growth people need to maintain their living standards," said 
Jared Bernstein, senior economist at the Economic Policy Institute.

Job losses continued in the construction industry, which has been hit 
hard by the housing downturn. That sector lost 34,000 positions in 
May and has now lost 475,000 jobs since its peak two years ago.

There were worrisome signs in the professional and business service 
sector, which has been a stalwart of job creation in the past year. 
It lost 39,000 jobs, most of them temporary workers who are often 
shed to avoid layoffs of permanent employees.

"It's a muddling economy that continues to muddle on," said John 
Silvia, chief economist at Wachovia.

The renewed upturn in oil prices left many oil experts shaking their 
heads. Earlier in the week, prices had begun to decline. In 
congressional testimony, legendary hedge fund manager George Soros 
warned of an oil price "bubble." The Commodity Futures Trading 
Commission said it was investigating price manipulation and warned traders.

But the six-year climb in oil prices and the doubling in prices over 
the past year have burned many oil traders who previously bet on 
dropping prices. That has left little resistance to those pushing 
prices up, said Adam Robinson, an oil analyst at Lehman Brothers.

Yesterday's increase comes on top of a nearly $5.50 increase the day 
before, for a two-day jump of $16.24 a barrel, or 13 percent.

The increase in heating oil prices broke the one-day trading limit on 
the New York Mercantile Exchange and triggered a brief trading halt. 
Morgan Stanley analyst Ole Slorer predicted that crude oil would 
reach $150 by Independence Day.

"This is the worst possible news at the worst possible time," said 
John Townsend, a spokesman for the auto club AAA. "Any hope we had of 
relief at the pumps won't happen soon."

Jeffrey Kupfer, acting deputy secretary of the Energy Department, 
called the high oil prices a serious problem. "It's taken us a long 
time to get into the situation that we're currently in. It's going to 
take us some time to get out of the situation that we're in," he 
said. "In our view, those prices are really the result of tight 
markets, tight fundamentals."

With consumption of gasoline slumping in the United States, one of 
the main drivers behind world oil demand has been China's rapidly 
rising imports of diesel fuel to make up for coal-fired electricity 
lost since the Sichuan province earthquake and to stockpile in 
advance of the Summer Olympics.

The Morgan Stanley analysis pointed to a sharp increase in eastbound 
oil shipments from the Middle East to Asia and a substantial drop in 
tankers heading west from the Middle East to Europe and the United States.

But other analysts questioned whether the rise of oil prices in Asia 
was sustainable absent strong demand in the United States. Lehman's 
Robinson noted that in countries like Vietnam, fuel and food make up 
the bulk of household expenditures and were pushing inflation to 25 
percent. He said Asian central bankers may have to intervene.

The sharp rise in crude oil prices was also fueled in part by supply 
fears. Israel's Transportation Minister Shaul Mofaz -- a former 
defense minister and contender for the post of prime minister -- told 
the Hebrew-language newspaper Yediot Ahronot that Israel would attack 
Iran if Tehran did not abandon its nuclear program.

Nigerian workers were also threatening to go on strike at Chevron 
operations in the oil-rich West African nation. Chevron produces 
about 350,000 barrels of oil there.

On stock markets, all of this news looked grim. High oil prices have 
drained money from consumers' pockets and boosted costs for most 
businesses. They have also siphoned about $1.5 billion a day out of 
the U.S. economy and into the coffers of oil-producing countries.

News that the European central bank indicated that its next rate move 
would be an increase, not a cut, also added to the gloom.

Stocks opened the day down sharply and continued to fall across the 
board except for a handful of gold and energy companies. Even some of 
the big oil company shares dipped as investors took profits.

"It's ugly. Everything is getting beat up today," said Todd Leone, 
managing director at Cowen & Co. "Right across the board, I have all 
red on my screen."

"It looks like the market is taking a return to the panic room," said 
Ed Rombach, a senior derivatives analyst at Thomson Financial.

Staff writers Jonathan Weisman and Tomoeh Murakami Tse contributed to 
this report.





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