A new report says the German economy shrank half a percent in July, August and September, which was the second straight quarter of decline. Falling exports are blamed for the contraction. A separate report from the Organization for Economic Cooperation and Development predicts that economic activity will shrink by half a percent in countries using the euro and nine-tenths of a percent in the United States next year. Michael Bowman reports
The U.S. unemployment rate has risen a full percentage point in the last year and currently stands at 6.5 percent. Most economists expect the rate to go much higher in coming months -- a belief that has been strengthened by the latest figures from the Labor Department.
Last week, the number of Americans filing for unemployment benefits rose by 32,000 over the previous week to 516,000 people -- the largest number recorded since the period following the terrorist attacks of September 11, 2001.
Linda Barrington is research director at the US-based Conference Board, a non-profit market research organization.
"This is further evidence of a very weak and worsening labor market. Having worse numbers in unemployment claims is certainly consistent with what we are seeing, which is just downward, downward, downward in the labor market," she said.
Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities, shared the dismay, and urged a steady hand from policymakers.
"It is just an absolutely horrible [labor] report," he said. "We have to have some leadership on this issue in terms of having a consistent policy approach where the rules of the game do not continue to be changed, because investors right now are looking for signs of confidence to come back into the market," said LaVorgna.
Wednesday, the Bush administration announced a shift in how the $700 billion U.S. financial rescue package approved last month will be spent. Instead of relieving lending institutions of bad debt stemming from U.S. home foreclosures, the federal government will continue to focus on purchasing stakes in troubled banks.
At a hearing on Capitol Hill, Senate Banking Committee Chairman Christopher Dodd reminded lending institutions that taxpayers funds are being used to rescue them from financial ruin -- and that they have a responsibility to resume lending to businesses and consumers to help spark economic activity.
"Let me say as clearly as I can: hoarding capital and acquiring healthy banks are not -- I repeat -- not reasons why Congress authorized $700 billion in emergency funding," he said.
News from across the Atlantic is equally unsettling. Europe's largest economy, Germany, is now officially in recession, after contracting by half a point in the 3rd quarter, following a point-four percent dip in the 2nd quarter.
The consensus view of economists is that the world's leading industrialized economies are all in recession -- or will be soon. Jorgen Elmeskov directs policy studies at the Paris-based Organization for Economic Cooperation and Development, which groups 30 nations that embrace the free market under a democratic system of governance.
"We are basically saying that the OECD [nations] are in recession and that the OECD is going to stay in recession for some time to come, and that the subsequent recovery is going to be a relatively slow one. The basic message is that we are in for a very troubled period," he said.
U.S. stock market indexes soared in Thursday's volatile trading. The Dow Jones Industrial Average jumped nearly seven percent at 554 points to end the day at 8,836. The S & P 500 also advanced nearly seven percent by 59 points to close at 911 while the NASDAQ rose six and a half percent or 97 points to hit 1,597.
Major Asian markets closed down more than five percent. European markets were mixed, with Paris and Frankfurt finishing the day moderately higher, while London closed slightly lower.