US hit by economic data

Economic reports point their fingers towards a clear recession in US economy

A weak batch of economic data sent US stocks deep down in the red on Wednesday, 15 October, 2008. The Dow witnesses another more than 700 point drop as sell-off intensified in the last couple hours of trading. Market had started the day in the red. Signs of recession got all the more intensified overshadowing all types of global efforts to sort out the current financial crisis. Better than expected earning reports from three Dow components failed to inject any sort of positive momentum among traders. Energy sector continued to be the main laggard following drop in crude prices.

The Dow Jones Industrial Average ended the day down by 733 points, to 8,577. The Nasdaq Composite Index, finished lower by 150 points at 1,628. S&P 500 finished lower by 90 points at 907.

Among the Dow components, all but one of the thirty Dow components ended in the red today. Exxon Mobil, Caterpillar and Alcoa were the main Dow laggards. The only Dow winner was Coco Cola. CoCo Cola, JP Morgan Chase and Intel – the three components came out with their earning reports. All three beat market expectations. JP Morgan announced a 85% drop in quarterly profit. JP Morgan and Intel closed lower by 5.5% and 6% respectively.

Among major economic reports for the day, the Commerce Department reported today that U.S. retail sales fell 1.2% in September, 2008, the worst drop in three years and the third decline in a row. It just sent another signal that the US economy has sunk into a recession. The 1.2% decline came against a forecast figure of 0.8% decline.

Sales in July and August were revised marginally lower, signaling that real consumer spending likely fell in the quarter for the first time in 17 years. It was the first time sales had fallen three months in a row since early 1991.

As per the report, sales were weak in September in almost all kinds of stores. Excluding the 3.8% drop in auto sales, retail sales fell 0.6%. Hurricanes Gustav and Ike may had reduced sales in the Gulf Coast states.

The Commerce Department also reported today that U.S. businesses added to their inventories in August as their sales slumped. Total Sales fell 1.8%, the biggest decline in two years, while inventories rose 0.3%. The key inventory-to-sales ratio ticked up to 1.27 from 1.24 in July, a sign that inventories are building up from very low levels. Inventories at retail auto dealers plunged 1.6%.

In another separate report, the Labor Department in US reported today, that producer prices fell 0.4% while core prices rose 0.4%. For the producer prices, it was the second consecutive monthly decline as energy dropped but food rose. Excluding food and energy, core producer prices rose 0.4% last month.

Stocks extend their declines in the afternoon as Fed Chairman Bernanke spoke at the Economic Club of New York. In Bernanke's text, he said that during past economic crises the government took too long to act, but during the current turmoil the government acted swiftly, which will help to restore market functioning quicker. Despite the swift action, Bernanke noted that credit markets "will take some time to unfreeze" and the economic recovery "will not happen right away."

Volume on the New York Stock Exchange topped 1.6 billion, with nine shares on the decline for every issue on the rise. On the Nasdaq, 743 million shares traded, and decliners outran advancers 6 to 1.

Crude prices slipped today below the $75 mark for the first time in a year on Wednesday, 15 October, 2008 despite the recovery effort by US to solve the financial crisis. The expectations among investors were left largely intact that the financial crisis will hasten a decline in consumption of oil. At the same time, The Organization of Petroleum Exporting Countries (OPEC) cut its 2009 demand forecast because of ``dramatically worsening'' conditions in financial markets.

Crude-oil futures for light sweet crude for November delivery closed at $74.54/barrel (lower by $4.09 or 5.2%) on the New York Mercantile Exchange. Prices fell to a low of $73.66 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 49% since then. Crude coughed up 17% last week. On a yearly basis, crude price is lower by 13%. For this year in 2008, crude prices have dropped 22%.

Earnings announcements will dominate from tomorrow onwards. Citigroup, Merrill Lynch, and United Technologies are expected to report results. Among economic reports for the day, the September Consumer Price Index and the weekly jobless claims report are both due prior to Wednesday's opening bell. Industrial Production data for September are due just ahead of tomorrow's start followed by the Philadelphia Fed Survey for October and the department of energy’s weekly inventory data.