Drop In Oil Prices Helps Send Dow Lower, Too

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ROBERT SIEGEL, host:

From NPR News, this is All Things Considered. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block. Now, we're going to hear more about the late afternoon plunge in the stock market. To get a sense of how far the markets fell, the S&P 500 lost 6.7%. It dropped to its lowest level in 11 years. Once again, a cascade of bad economic news preceded the selloff. NPR's Jim Zarroli joins me now. And, Jim, we're going to have to start reserving you a daily slot on the program if this keeps up. What's behind today's big drop?

JIM ZARROLI: Yeah, there's a kind of depressing familiarity to all this, isn't there? Every day, we get more evidence of how much the economy is slowing. Today, unemployment claims rose to 542,000. That's the highest rate in 16 years. Index of leading economic indicators fell. Really, though, I think the focus on individual reports probably obscures what is taking place. I mean, this isn't about one piece of data.

We're just seeing this wholesale collapse of confidence in the economy. Investors have become very risk averse. They look for any chance they can find to sell. Just as an example, Citigroup today got a big investment of capital from a Saudi prince. That's the kind of thing that should make Citigroup shares go up, but the stock fell anyway.

BLOCK: Why don't we take a step back, Jim. How much have stock prices fallen since the beginning of this year?

ZARROLI: Well, the S&P 500, which is considered the best gauge of how the stock market is doing, 49 percent for the year. If that holds up, this will be its worst year ever. The Dow is down 43 percent this year.

It's, you know, it's just an ugly situation. We're in a kind of vicious cycle now. The more stocks fall, the more people lose confidence in the economy. You know, they don't want to buy. That hurts profits, which causes stocks to fall even more.

BLOCK: And the Dow ended today, what, at 7,552, I think?

ZARROLI: Yes, something like that.

BLOCK: If people are taking their money out of the stock market, Jim, where are they putting it - cash, Treasuries? Where is it going?

ZARROLI: Well, a lot of people are putting it in cash, which is maybe a safe thing to do right now, but it is, of course, bad for the economy because, if people don't want to invest, then companies can't get the money they need to do things, like hiring.

Another thing people are doing right now is putting money into government Treasury Bills, basically lending it to the government. You know, it might seem hard to believe, but Treasury Bills are still considered a safe place to invest. There's so much demand for Treasuries that the interest rate that the government pays can go down. The rate on the 10-year Treasury Bill fell to just a little over 3% today, which is the lowest rate in five decades.

BLOCK: Also, Jim, today, another big drop in oil prices, now below $50 a barrel. Look back at the summer, the high was $147. Now, we're down to 50. Good news for drivers, good news for anybody else?

ZARROLI: Yeah, it is obviously very good news for the economy as a whole, but it's happening because the economy has slowed so much. We're seeing the same drop across the board in commodity prices.

Now, all these things are interrelated. The credit crunch, for instance, has hurt auto sales, so auto companies aren't building cars. They're using less steel, so metal prices are going down. The same thing is happening with corn, with soybeans, everywhere you look. Today, you had one of the country's biggest cotton merchants, which is a company called Weil Brothers, say it was getting out of the business altogether because the market has just become too risky.

BLOCK: OK, thanks, Jim.

ZARROLI: You're welcome, Melissa.

BLOCK: That's NPR's Jim Zarroli in New York.

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