Unemployment claims continue to be elevated as it hit 423,000 this week, which was 3,000 more than expected.
Gen-Y has the worst unemployment. Near-retirees have the least time to recover their savings. And Gen-Xers? They're caught between debt that won't disappear and an economy that won't move. A good article below on how the economy is hurting different age groups.
Here are the top financial stories of the day:
1) U.S. Stocks Plunge-From The Wall Street Journal
Investors staged a global flight from risk Thursday that sent U.S. stocks plummeting and 10-year Treasury yields to 1940s levels, after a gloomy outlook by the Federal Reserve renewed fears of a global economic slowdown.
The Dow Jones Industrial Average closed down 391.01 points, or 3.5%, to 10733.83, as investors barreled out of stocks and into "safe" assets like the U.S. dollar, which surged. The blue-chip measure fell more than 500 points in afternoon action, averting its lowest close in a year with a late-session lift. The action built on the stock market's Wednesday selloff, when the Fed acknowledged "significant" downside risks to the economy and noted "strains" in global financial markets, a reference to debt-strapped Europe.
A weak reading on manufacturing in China contributed to the slowdown fears. Adding to the grim mood was a lack of appreciable progress in containing Europe's debt crisis, which has weighed on markets for months.
The Standard & Poor's 500-stock index shed 37.20 points, or 3.2%, to 1129.56, after touching its lowest intraday level since early August. The technology-oriented Nasdaq Composite slumped 82.52 points, or 3.2%, to 2455.67.
Among NYSE-listed issues, decliners outnumbered gainers by just over 7 to 1, while the Nasdaq losers outpaced rising issues by about 6 to 1.
All blue-chip stocks finished in the red, as did all S&P 500 sectors. Materials and energy stocks were hit hardest, falling as investors acted on their economic slowdown worries and in reaction to the fast rise of the U.S. dollar.
"They're selling literally everything," said Alan Valdes, director of floor trading at DME Securities at the New York Stock Exchange. "It's the realization that things aren't getting better that has traders concerned. They're selling gold, they're selling copper, they're selling everything."
European stocks closed sharply lower. The Stoxx Europe 600 shed 4.6% to hit the lowest level in more than two years in intraday trading. Asian bourses also dropped sharply, with China's Shanghai Composite losing 2.8% on news that manufacturing activity in China contracted in September. Hong Kong's Hang Seng index slid 4.9%.
"A lot of people who had very significant investment positions based on a scenario of dollar weakness changed those position pretty violently," said Douglas Cliggott, chief U.S. equity strategist at Credit Suisse. "I think the bottom line of the Fed's decision was, 'No, we're not going to be growing our balance sheet for the foreseeable future.' It leaves the U.S. as the odd man out in this effort to, in effect, grow central bank balance sheets and weaken currencies."
The first improvement in U.S. jobless claims data in three weeks did little to change the negative tone of trading. New claims for unemployment benefits last week dropped by 9,000 to a seasonally adjusted 423,000, according to the Labor Department. The level remains too high to suggest much improvement in the stubbornly weak U.S. jobs market. In addition, the previous week's figure was revised to reflect more jobless claims.
Investors also shrugged off other modestly positive economic data Thursday morning. The Conference Board's index of leading economic indicators increased for the fourth consecutive month in August and government data showed that U.S. home prices increased in July for the fourth straight month.
In the backdrop was a flareup in U.S. debt worries, the result of the surprise failure of a bill to fund the U.S. government through mid-November. Conservative Republicans and most Democrats teamed up for the largest defeat inflicted on the Republican House majority this year. The episode was a reminder of market gyrations this summer, when Washington was caught in an impasse of raising the limit on federal borrowing.
In corporate news, shares of Goodrich gained 10% after the aircraft-components maker agreed to be acquired by blue-chip conglomerate United Technologies for $16.4 billion in cash. United Technologies fell 8.8%.
FedEx slipped 8.2% after the package-delivery service reported fiscal first-quarter results that were higher than expected, but said it slightly reduced its earnings outlook as it looked to adjust its cost structure to match lower demand.
Red Hat gained 3%. The software company reported better-than-expected fiscal second-quarter results.
CarMax lost 11%. The used-car dealership chain's results missed estimates for the first time in about two and a half years amid a decline in customer traffic and same-store sales, which it attributed to the recent economic slowdown and weakness in consumer confidence.
2) Initial Jobless Claims in U.S. Fell Last Week-From Bloomberg
More Americans than forecast filed first-time claims for unemployment insurance payments last week as the labor market struggled to improve.
Applications for jobless benefits decreased 9,000 in the week ended Sept. 17 to 423,000, Labor Department figures showed today. Economists forecast 420,000 claims, according to the median estimate in a Bloomberg News survey. The average number of claims in the past month rose for a fifth straight week, to the highest level since July 16.
An elevated level of dismissals raises the odds U.S. companies may put off plans to increase employment, making it difficult for joblessness to fall below 9 percent. Citing ongoing weakness in the labor market, Federal Reserve policy makers announced yesterday they would use another unconventional monetary tool to spur economic growth and job gains.
“These numbers are consistent with a job market that is essentially in suspended animation,” said Brian Jones, an economist Societe Generale in New York, who correctly forecast the level of claims. “Anything that the Fed does to help the economy should help the labor market, but it takes time. We’ve got to see job growth before we can get more demand.”
Estimates for first-time claims ranged from 408,000 to 430,000 in the Bloomberg survey of 45 economists. The Labor Department initially reported the prior week’s applications at 428,000.
A Labor Department official said today as the figures were released that the latest week’s data included no special circumstances.
3) Who's Had the Worst Recession: Boomers, Millennials, or Gen-Xers? From The Atlantic
The Millennial generation got hit hardest by the Great Recession. You might have heard this, over and over, especially if you read The Atlantic or happen to have asked somebody from the Millennial generation. Downturns like this one change the course of a lifetime for college graduates, as low starting salaries snowball into a lifetime of depressed wages, slim pensions, and even shorter lifespans.
Hogwash! a Boomer might retort. Even if they have narrower prospects, Millennials have their whole lives to make back lost wages. When the stock market tumbled and housing prices collapsed, couples near retirement lost their nest eggs at the very moment that they were looking to step out of the workforce. Surely, they suffered the most from the timing of this recession.
Oh, come on! a Gen-Xer might respond, we got the worst of both worlds. The 46 million Americans between the age of 33 and 46 reached the prime of their working years only to find salaries depressed by a bad economy and promotions suppressed by lingering Boomers.
This is a debate without a winner, and we're not going to name one. Instead, we're want to look across three categories -- employment, income, and overall wealth outlook -- and argue on behalf of each generation that their cohort got it worst.
EMPLOYMENT
GenY: It's a simple case: Unemployment is worst for the youngest. Overall joblessness is between two and three times higher for 20-somethings than older workers, and the greatest percentage increase in unemployment between December 2007 and September 2010 happens to be 20-24-year olds ... with a college education!
GenX: Young people can move around with ease. But when you're married with children and a house, it's harder to pick up and follow the job openings. Worse for GenXers, the fastest-growing jobs are in positions that a middle-class mother or father is disinclined to accept. Six in ten jobs lost during the downturn were in middle-wage occupations, according to the National Employment Law Project, and nearly 75 percent of the jobs added since were lower-wage -- so-called McJobs. Gen-Yers can afford $10 an hour, for a while anyway.
Boomers: For those out of work, it's bad to be a Boomer. Older workers suffered the largest overall increase in long-term unemployment, and they face the longest spells of joblessness. In 2009, younger workers were about as likely as prime-age workers to find work, but unemployed older workers were the least likely of all to find jobs, with only about 15 percent of jobseekers finding jobs each month in 2009.
INCOME
GenY: For Millennials, it's not just the money they're not making today. It's all the money they won't make tomorrow. For every one-percentage-point increase in the unemployment rate, new graduates' starting income falls by 7 percent, according to Lisa Kahn, an economist at Yale. And 17 years later, those who had entered the workforce in the worst of a recession still earn 10 percent less than those who graduated in lusher times. When you add it all up, Don Peck writes, "it's as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation."
GenX: A recent study by the Center for Work-Life Policy (charticled nicely by Bloomberg Businessweek) revealed Gen-Xers to be the chief victims of the Great Recession. They're working harder -- a two-parent family worked 26 percent more hours in 2010 than in 1975 -- and making less. Thirty-something men had an average income of $40,000 some 30 years ago; today, it's $35,000. Yet remarkably, hourly wages for this group have fallen even more for women in the last ten years. Finally, the ladder to the C-suite is crowded: Boomers have delayed their expected retirement by another five years since the recession struck.
Boomers: Since Boomers have the lowest unemployment rate and the highest total income, it's hard to make the case that 47-65-year-olds have the worst income crisis. Rather, their greatest challenge is preserving wealth at a time when asset values have been decimated. More on that in the next section.
THE FUTURE OUTLOOK
GenY: This overall wealth outlook category is all about debt-building versus asset-building. Gen-Yers don't have a lot of assets, which is fortunate at a time when housing values have fallen more than 25 percent in major cities. But we do have debt, particularly student loan debt, and this is a particularly nerve-wracking story. Total student loan debt infamously eclipsed credit card debt last year at $850 billion, and tuition costs are still rising even faster than health care costs. The hollowing out of the middle class means that paying back that debt -- and finding ways to pay for an education that keeps us ahead of productivity curve -- will be the challenge of a generation.
The kids behind us face these challenges, and more. If their parents can't afford tuition and extended health care coverage, that will mean more debt for today's grade-schoolers. In the near future, the poverty rate for children is projected to rise to a multi-decade high of 26 percent in 2014.
GenX: Compare debt and assets: The first is growing, the second is falling, and that's not the way you want it. Low pay today is coming on the heels of a big student debt increase. In 1977, when the youngest Gen-Xers were in 4th grade, a third of students borrowed for college. By the time this generation was finishing school, 65 percent borrowed to attend college. The average homeowner entered the recession with debt equal to 125 percent of income. Now with a fifth of homes underwater or close to it, millions of older Gen-Xers (and Boomers) are drowning in what they thought were their savings vehicles.
There is also the question of how this plays out for retirement. X-ers are in danger of losing out on their pensions, whether or not state and federal governments reform their calculations. "When somebody loses a job at age 60, their pensions are not as affected because they've racked up enough lifetime earnings," said Till Von Watcher, associate professor economics at Columbia University. "But for somebody to lose a job in their 30s, they're facing lasting declines in earnings that affect their pensions too."
Boomers: Vacillations in the stock market might not worry a 20-something with decades left on his savings account. They might not freak out a 40-year old who doesn't expect to quit until she's 70. But if you're an older worker on the lip of retirement, your investments are your savings and your savings are about to become your principle source of income. "This last recession has definitely not treated everyone equally," said Susan Menke, an economist at market research firm Mintel. "Younger boomers [are] the 'sandwich' generation, burdened with educational expenses for their kids and, for some, health care costs for aging parents." As tuition and medical services get more expensive and the stock market lingers below its pre-recession high, even Boomers who have kept their jobs, their homes, and their savings and every right to be nervous about how the economy handles in their last years in the workforce.
Quote of the Day from Dave Ramsey.com:
Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all. — Dale Carnegie
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