Deficit and jobless claims jump, but stocks soar
WASHINGTON — The nation's financial picture grew darker Thursday, a day marked by breathtaking numbers: a quarter-trillion-dollar budget deficit for a single month, a half-million new applications for unemployment benefits and a 900-point swing that led Wall Street to its third-biggest point gain ever.
Analysts predicted that the steady drumbeat of gloomy statistics would only get worse in coming months as the country endures what could be the worst downturn since the severe 1981-82 recession.
The initial costs of the government's economic bailout efforts sent the U.S. budget deficit for October soaring to a record $237.2 billion, putting it on track to reach the once-unfathomable sum of $1 trillion for the year.
"And as bad as these numbers are, they may look good a year from now because things are going to get much worse," said Sung Won Sohn, an economist at the Smith School of Business at California State University.
In more grim economic news released Thursday, the number of newly laid-off workers applying for jobless benefits last week hit the highest level since the period right after the Sept. 11, 2001, terrorist attacks.
As the economy weakens, the government's fiscal picture was projected to deteriorate, too, with layoffs cutting into tax revenues and forcing higher payouts for programs such as unemployment benefits and food stamps.
Unemployment, which jumped to a 14-year high of 6.5 percent in October, is now projected to climb above 8 percent. Sohn said that will further crimp government tax revenues, which were down 7.5 percent in October compared with a year ago.
The stream of negative news initially sent Wall Street down sharply, with the Dow Jones industrial average briefly dropping below 8,000. The markets later rebounded with a fury, closing up about 550 points.
Wal-Mart Stores Inc. reported that profits were up 10 percent for the third quarter as its renewed focus on low prices attracted financially squeezed shoppers. But the country's biggest retailer trimmed its outlook because of the troubled global economy.
The Treasury Department said that the $237.2 billion deficit for October, the highest ever recorded for a single month, reflected the $115 billion spent last month to purchase stock in eight of the country's biggest banks, the opening phase in the $700 billion rescue of the financial system passed by Congress on Oct. 3.
It was far bigger than analysts expected, more than four times larger than the October 2007 deficit of $56.8 billion, and more than half the total for all of last year.
The potential $1 trillion deficit reflected not only the massive expenditures from the rescue effort but also an expected second stimulus program and the effect of a steep recession.
The Labor Department reported that the number of new applications for jobless benefits jumped by 32,000 to 516,000 last week. That nearly matched the 517,000 claims reported seven years ago, and it is only the second time since 1992 that claims have topped 500,000.
On Capitol Hill, some of the largest U.S. banks sharing in the $700 billion government bailout tried to assure lawmakers they are using the money to make more loans and help financially strapped homeowners avoid foreclosure.
Executives from JPMorgan Chase, Goldman Sachs Inc., Bank of America and Wells Fargo & Co. told the Senate Banking Committee that none of the $85 billion they have received collectively from the government is being used to pay salaries or bonuses.
In the House, five prominent hedge fund managers told lawmakers they support a new central exchange to open the murky world of some complex investments that are partly blamed for the global financial crisis. But the billionaires offered differing views on the need for stricter regulation of hedge funds themselves.
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MARTIN CRUTSINGER | November 13, 2008 09:35 PM EST |
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