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Dow Retreats From 10,000 on Weak Earnings Reports

By Renae Merle and Dana Hedgpeth
Washington Post Staff Writers
Saturday, October 17, 2009

Weighed down by disappointing earnings on Friday, the Dow Jones industrial average lost its grip on its biggest accomplishment of the week -- closing above 10,000 for the first time in a year.

After breaking through the barrier on Wednesday and capping a six-month rebound from market lows earlier this year, the Dow fell 67.03 points, or 0.67 percent, to close at 9995.91. The broader Standard & Poor's 500-stock index dropped 8.88, or 0.81 percent, to 1087.68, while the tech-heavy Nasdaq fell 16.49 points, or 0.76 percent, to 2156.80.

All three indexes still ended the week in positive territory, lifted by strong results from J.P. Morgan Chase and Goldman Sachs in recent days. But weak quarterly reports from several large companies on Friday dampened investors' sentiment.

Bank of America, the country's largest bank, reported a $1 billion loss in its third quarter compared with a $1.18 billion profit during the corresponding period last year. After paying more than $1 billion in dividends to preferred shareholders, the bank's loss widened to $2.24 billion, or 26 cents a share -- worse than most analysts had expected. Shares of Bank of America fell 4.6 percent.

Meanwhile, shares of General Electric fell 4.2 percent after the company posted a 44 percent decline in third-quarter earnings.

"GE and Bank of America raised question marks again," said Peter Cardillo, chief market economist with Avalon Partners. "It gave investors a reason to be cautious and take some profits." Investors were also disappointed by a survey showing that consumer confidence remains weak. The Reuters/Michigan consumer sentiment index's reading fell to 69.4, from 73.5 in September. Consumers have become more confident about the overall economy but are still very worried about their own financial conditions, economists said.

In one piece of positive economic news, the Federal Reserve released data that shows U.S. industries in September boosted production 0.7 percent from August. It was the second straight monthly increase. Of the 19 manufacturing sectors tracked in the Fed's production numbers, 12 posted increases in September.

One of the main drivers of the numbers, economists say, is automakers ramping up production after having idle plants over the summer and to replenish inventories after the government's popular Cash for Clunkers trade-in program. But the figures illustrate a broader trend: As business inventories shrink, factories must increase production to keep up with demand.

In the past six weeks, Jamie McGregor has started to see some bright spots at his metal-stamping plant in Springfield, Ohio. Morgal Machine Tool received a 10 percent jump in orders that allowed him to ratchet up the production lines and start churning out more of the pulleys for lawnmowers and parts for treadmills, tillers and seats in cars. The orders prompted him to call back 30 of the 150 workers he had laid off in the past year.

McGregor said he's running his machines at half their capacity and working his employees more efficiently. "We're asking people to operate instead of just one machine, to operate two," he said. "We're continuing to do what we do, but with less people."

It is an encouraging sign, economists say, that the manufacturing sector is making a bit of a recovery from the economic slump, but how long it will last is still an unknown.

The industrial sector was operating at 70.5 percent of its capacity in September -- up slightly from 69.9 percent in August. It is another positive sign that more idle factories are being put back to work. But it also shows that manufacturers are not running at their full capacities, economists say.

"We dug a big hole with industrial production when demand for goods just fell through the floor and now manufacturing output is turning up at a fairly nice clip," said Cliff Waldman, an economist for the Manufacturers Alliance, a public policy and research group.

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