US stocks decline on recession remark, retail sales drop

October 16th, 2008 - 12:28 am ICT by IANS  

New York, Oct 15 (DPA) US stocks continued their decline at the opening bell Wednesday, hit by the largest drop of retail sales in three years and growing worry over a US recession.The president of the Federal Reserve Bank of San Francisco, Janet Yellen, said late Tuesday that the US is already in a recession and that the job of the central bank is to “mitigate the dark scenario on the downside risk”.

US Federal Reserve head Ben Bernanke, who was to deliver a speech in New York at 11.15 a.m. (3.15 GMT) Wednesday, has not yet used the word “recession,” but has been indicating for weeks that the financial crisis and credit freeze may take “a heavy toll” on the economy if left unchecked.

Also late Tuesday, the US government reported a record deficit of $455 billion for the just-ended 2007-08 budget year. The deficit represents 3.2 percent of the gross domestic product (GDP) of the $14-trillion US economy. The 2006-07 deficit was $161.5 billion, or about 1.2 percent of the GDP.

The announcement Tuesday that the US government would use $250 billion of the $700-billion finance rescue package to buy up bank shares failed to stop stocks from sliding, and the decline continued Wednesday.

The broad-based Standard & Poor’s 500 Index declined 42.97 points, or 4.31 percent, to 955.04, at 11:20 a.m. in New York. The blue chip Dow Jones Industrial Average retreated 333.33, or 3.58 percent, to 8,977.66. The Nasdaq high tech index shed 52.94, or 2.98 percent, to 1,726.07.

The retreat over the past two days has erased more than a third of the gains in the S&P 500 and Dow Monday, when stocks rose the most since the 1930s on the coordinated effort from Europe to stem bank losses and on hints at the US government’s plan to buy up bank shares.

Retail sales fell 1.2 percent in September, almost twice economists’ estimates, the US Commerce Department reported Wednesday.

Exxon Mobil, Chevron and ConocoPhillips, the three biggest US oil companies, each lost more than 5 percent as crude fell below $75 a barrel for the first time since September 2007. The drop in oil prices reflects worry over the slowing economy and reduced demand by consumers who have cut down on driving.

Two finance giants - JPMorgan Chase and Wells Fargo - reported large declines in profits, but still remained in the black.

JPMorgan Chase reported net income of $527 million in the third quarter of 2008, plunging 84 percent year-on-year. Wells Fargo & Co, the bank in the limelight in the acquisition of Wachovia Corp, reported net income of $1.64 billion in the third quarter, down 24 percent year-on-year.

The third-largest US air carrier Delta Air Lines reported it lost $50 million in the third quarter of 2008 amid rising fuel costs.

On the bright side, Coca-Cola Co, the world’s largest soft drink manufacturer, reported a third-quarter profit increase of 14 percent to $1.9 billion despite the economic downturn.

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