Reserve chairman Alan Greenspan said the current market turmoil is "identical"
in many ways to that which occurred in 1987 and 1998 even as US payrolls shrank
in August for the first time in four years.
decline in payrolls reported by the US labor department prompted calls for the
Federal Reserve to lower interest rates before credit market turmoil drags the
economy into recession.
behavior in what we are observing in the last seven weeks is identical in many
respects to what we saw in 1998, what we saw in the stock-market crash of 1987,"
the Wall Street Journal quoted Greenspan in its online edition.
now a consultant but was Fed chairman from 1987 to 2005, said business expansions
are driven by euphoria and contractions by fear. He made the comment at an event
in Washington organised by the Brookings Papers on Economic Activity, an academic
journal, the report said.
said the expansion phase of the economy is quite different where euphoria is the
driver, and "fear as a driver for the downturn, which is going on today,
is far more potent than euphoria."
labour department''s report of 4,000 fewer non-farm jobs has shocked financial
markets that had anticipated continued job creation.
government officials tried to allay fears that the turmoil in credit markets stemming
from rising defaults on subprime mortgages was spreading, treasury secretary Henry
Paulson said a softening housing sector "is going to extract a penalty on
growth, and what we''re going through in the credit markets is very apt to extract
a penalty on growth, but the economy is going to continue to grow in the second
half of the year."
last time the economy shed jobs was in August 2003, when a drop 42,000 non-farm
jobs was reported.
chairman of the congressional Joint Economic Committee, Democratic Senator Charles
Schumer, said the soft jobs report was "a punch to the gut of our economy"
that implied the subprime lending crisis threatens to engulf the broader economy.
financial services committee chairman Barney Frank made a call for the Fed to
rescue the economy quickly with lower interest rates.
prices plummeted on fears about possible recession. On Friday, the Dow Jones industrial
average lost 249.97 points to end at 13,113.38 and the Nasdaq Composite Index
closed down 48.62 points at 2,565.70.
prices soared as investors became convinced that the Fed would cut interest rates,
with the only questions being how soon and by how much.
addition to the August job losses, the labor department revised down its estimates
for hiring in June and July by a total of 81,000. It said 68,000 jobs were added
in July rather than 92,000 and 69,000 in June instead of 126,000.
the job losses in August, the unemployment rate - complied from a separate survey
of households - was unchanged from July at 4.6 per cent as a shrinking workforce
offset a decline in employment. It has held in a range from 4.4 per cent to 4.6
per cent since last September.
turmoil in credit markets only set in at mid-August and it is unclear how it may
affect the overall economy. Some big financial services firms already have announced
layoffs as they trim their subprime mortgage business.
secretary Carlos Gutierrez said the economy was benefiting from rising exports
and consumer spending was holding up.
losses in August were concentrated in the goods-producing sector. A whopping 46,000
manufacturing jobs were cut, the most since an 86,000-job cut in July 2003.
businesses shed another 22,000 jobs, up from 14,000 that were lost in July. Service
industries added 60,000 jobs in August.
also see : General
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