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Dow ends up 401 in another stunning U-turn

(Agencies)
Updated: 2008-10-17 11:47

The economic picture did not look much rosier. Prices stayed flat overall in September, the government reported, meaning inflation is in check, at least for now. Gas, clothes and new cars got cheaper, and food, medical care and other items got more expensive.

Shoppers walk around a mall in New York City. More troubling US economic data surfaced Thursday showing the banking and credit crisis has taken a sharp bite out of the manufacturing sector, increasing the risk of a deep and long downturn. [Agencies]

In an indicator that more price declines might follow, crude oil fell $3.14 a barrel to $71.40, about where it was a year ago and a level unimaginable over the summer, when gasoline soared past $4 a gallon.

"Inflation has peaked," said Ian Shepherdson, chief US economist at High Frequency Economics, predicting huge declines in inflation readings.

But the paychecks Americans use to pay for all of it are shrinking. Weekly wages dropped by 2.5 percent in September from a year ago.

In a reflection of the trouble in the banking industry, Citigroup said it lost $2.8 billion in the third quarter, compared with a profit of $2.2 billion a year ago. The deficit for the July-to-September period brings Citi's total losses over the past year to more than $20 billion. The bank said it had cut 11,000 jobs in the third quarter, bringing its job cuts for the year to 23,000.

General Motors Corp. said it would lay off 1,600 workers at three factories indefinitely over the next few months.

The US economy is suffering from a litany of problems: falling wages, weak consumer spending, tight credit, slumping home prices and rising job losses. While the number of new people signing up for unemployment benefits last week dropped, new claims still totaled 461,000, a figure associated with deep troubles in employment conditions.

Still, on Wall Street, other major averages showed gains similar to the Dow's 4.7 percent. The Standard & Poor's 500 gained more than 4 percent, and the Nasdaq composite index added 5.5 percent.

But one day's climb won't do much to repair investors' portfolios. Since Oct. 9, 2007, when the Dow topped 14,000, investors have lost $8.3 trillion from pension funds, college savings plans, 401(k)s and other investments.

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke have expressed confidence that the government's radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy. They have also warned that the economy won't turn around quickly.

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