US stocks plunged yesterday, mirroring markets across the world, following confirmation that unemployment rose to a four-year high last month. The Dow closed down more than more than 2.3 per cent, but the technology-led Nasdaq fared slightly better, after a shaky start as investors scoured the market for bargains.
New data released yesterday showed the US unemployment rate rose sharply from 4.5 to 4.9 per cent in August. It raised new fears that the US economy was steadily slipping into recession.
More US workers were paid off in August than in any other month in the last six years, the Labour Department said, with US businesses cutting 113,000 jobs, 17,000 more than forecast by analysts.
The unexpectedly bad news led to heavy sell-offs on Wall Street as investors rushed to off-load retail and other consumer-oriented stocks, and drove major indices down to within striking distance of record 2001 lows.
President George W Bush said that he was "deeply concerned" about the unemployment rate and "we are going to do something about it". He added: "Too many people are losing their jobs because of the slowdown. It is real and is affecting too many lives. Any American out of work is too many Americans out of work."
The Dow Jones industrial index, which last week dropped below the psychologically-important 10,000 barrier, fell to its lowest point of the year, as retail, home building and other cyclical stocks took a pounding in expectation of a consumer-spending slump. It closed at 9,610.01, down 2.35 per cent.
The Standard and Poor index of the 500 most commonly traded shares fell almost to its three-year low. The index, against which money managers judge the performance of their own portfolios, broke through its 2-1/2-year closing low of 1,103.25 recorded in late March, closing at 1,085.88. The last time the S&P ended below 1,092.10 was on October 28th, 1998 when it fell to 1,068.10.
The Nasdaq also slid for most of the day but came off its lows on news from Dell Computer that its forecast for the fourth quarter was on track. It was down 17.49 points, or just 1.03 per cent, closing at 1,688.15.
"The market wants some sign we're coming out of an economic nuclear winter, but there's no sign of an improving economy. In fact, it seems to be getting worse," said Mr Larry Wachtel, a stock market analyst with Prudential Securities.
US investors returning from holidays had been hoping for a rally, but with a mix of gloomy indicators and renewed profit warnings through the summer months, the market has continued its late August slide.
US consumer spending drives two-thirds of the world's biggest economy and the surge in unemployment is expected to lead to a significant downturn in retail sales. The unemployment rate had hovered around 4.5 per cent since April, but laid-off workers are not finding new jobs as quickly as before.
Manufacturing was once again hardest hit, and has now lost one million jobs since July last year. The August decline of 141,000 manufacturing jobs was the largest so far this year, with almost every major manufacturing industry losing jobs in August.
The service sector increased employment by 72,000 as health services continued to add jobs, but retail employment was down in August as restaurants and bars lost 30,000 jobs following a large increase in July. Hotel employment also continued to fall, with job losses since March now totalling 42,000.
The August jobless rate is still low by historical standards but is sharply up from the level of 3.9 per cent last year, the lowest in 30 years.
