More Recession Warning Signs Send Markets Lower

By Jennifer Yousfi
Managing Editor

A drop in gasoline prices coupled with more troubling economic indicators sent stocks down yesterday (Thursday), erasing gains made in early morning trading.

At the New York close, the three major U.S. stock indices were in the red. The blue-chip Dow Jones Industrial Average Index dropped 147.60 points (-1.19%), to trade at 12,279.66. The tech-laden Nasdaq Composite Index shed 27.67 points (-1.19%), to reach 2,299.43. And the broader Standard & Poor's 500 Index lost 17.82 points (-1.31%), to settle at 1,342.21.

All sectors were down with energy, conglomerates and transportation posting the largest declines. Shares of Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) declined.

Gas prices fell due to a surprise 1 million barrel increase in inventory. According to a Bloomberg survey, only a 500,000-barrel increase was expected.

"There comes a point where fundamentals can no longer be ignored," Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York, told Bloomberg News. "You can't justify $100 oil when inventories are up six weeks, demand is weak and the economy is slowing."

The Conference Board reported yesterday that its index of leading U.S. economic indicators slipped 0.1% in January. The index looks at several forward-looking indicators to try to determine future economic growth. The January decline follows a similar 0.1% drop in December.

Over the past six months, the leading economic indicator index has dropped 2%, which the Conference Board says can be one of the "reasonable criteria for a recession warning."

"The survey is gloomy indeed and suggests that if recession is avoided, it will be close," Ian Shepherdson of High Frequency Economics told MarketWatch.

The Federal Reserve Bank of Philadelphia also had troubling news for the U.S. economy yesterday. Its general economic index fell more than expected to settle at -24, with more manufacturing firms reporting a decrease in activity, rather than an increase.

"The economy is shrinking and business sentiment is as bad as it can be," Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, told Bloomberg News. "We're very close to a recession."

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