Record Oil Spike, High Jobless Rate Sink Stock Market
Saturday, June 7, 2008
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.