News
Email
Print
Markets tumble as price of crude oil hits new high
ADVERTISEMENT
Published: 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 can break out of a pattern of feeble growth and financial instability.
The nation's unemployment rate rose to 5.5 percent last month, the biggest leap in more than 20 years, 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 high of more than $139 a barrel before settling at $138.54. That more than erased a drop earlier in the week and promised further increases in 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 10 years ago.
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, the head of equity trading at Morgan Keegan, an investment and brokerage company. "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. 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 Hispanics.
There were worrisome signs in the professional and business-service sector, which has been a stalwart of job creation in the past year. It lost 39,000 jobs, most of them temporary workers who are often shed to avoid layoffs of permanent employees.
"It's a muddling economy that continues to muddle on," said John Silvia, chief economist at Wachovia.
The renewed upturn in oil prices left many oil experts shaking their heads. Earlier in the week, prices had begun to decline. In congressional testimony, legendary hedge-fund manager George Soros warned of an oil price "bubble." The Commodity Futures Trading Commission said it was investigating price manipulation and warned traders.
But the six-year climb in oil prices and the doubling in prices over the past year have burned many oil traders who previously bet on dropping prices. That has left little resistance to those pushing prices up, said Adam Robinson, an oil analyst at Lehman Brothers.
Yesterday's increase comes on top of a nearly $6 increase the day before, for a two-day jump of $16.24 a barrel, or 13 percent.
The rise in heating-oil prices broke the one-day trading limit on the New York Mercantile Exchange and triggered a brief suspension of trading. A Morgan Stanley analyst, Ole Slorer, predicted that crude oil would reach $150 by the Fourth of July.
"This is the worst possible news at the worst possible time," said John Townsend, a spokesman for the AAA auto club. "Any hope we had of relief at the pumps won't happen soon."
The sharp rise in crude oil prices was also fueled in part by supply fears. Israel's Transportation Minister Shaul Mofaz -- a former defense minister and contender for the post of prime minister -- told the Hebrew-language newspaper Yediot Ahronot that Israel would attack Iran if Tehran did not abandon its nuclear program.
Nigerian workers were also threatening to go on strike at Chevron operations in the oil-rich West African nation. Chevron produces about 350,000 barrels of oil there.
On the stock markets, all of this news looked grim.
High oil prices have drained money from consumers' pockets and raised costs for most businesses. They have also siphoned about $1.5 billion a day out of the U.S. economy and into the coffers of oil-producing countries.
Email
Print
