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Ecnomy weakens { September 17 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A33759-2000Jun21.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A33759-2000Jun21.html
Stocks Fall as Economy Weakens
By Jerry Knight
Washington Post Staff Writer
Tuesday, September 17, 2002; 5:07 PM
Crude oil prices fell today after Iraq promised to let in United Nations's weapons inspectors, but the dubious pledge did nothing good for Wall Street.
Falling oil prices brought down the stocks of big energy companies, reinforcing a sell-off triggered by the latest signs of weakness in the U.S. economy.
The Dow Jones industrial average dropped nearly 173 points to 8,207.55, and the Standard & Poor's 500 index was off nearly 18 points at 873.52. The Nasdaq composite index fell almost 16 points to 1,259.94.
Stocks bounced briefly in the first few minutes of trading in an apparent response to the pull back in oil prices, which seemed to relieve the threat that expensive fuels would hurt economic growth.
But the economy is facing plenty of its own problems, based on the day's reports from government data gathering agencies, private industry groups and major corporations.
The statistical shock came from the Federal Reserve's report on August industrial production, which unexpectedly declined.
Economists were expecting a modest increase in output, instead the Fed reported the first decline since December.
A second sign of the weakening economy came in the Christmas sales forecast from the National Retail Federation.
The big chains that are members of the retail federation are expecting holiday sales to grow just 4 percent this year, which would be the smallest increase in five years.
No easier to swallow were earnings warnings from McDonald's, the world's biggest fast food chain, and Kroger, the nation's biggest supermarket chain.
McDonalds cut its profit forecast for the year, saying the burger business has been cold for the past two months and the forecast for fall is not any better.
Kroger, too, scaled back earnings estimates, saying it is being forced to cut prices – and profits – to counter competition from Wal-Mart.
Another drag on the markets was Fannie Mae, the giant government-chartered mortgage company, whose stock suffered its worst loss in more than a year and a half.
The shares fell after the obscure government agency that oversees Fannie Mae and its sister company Freddie Mac, ordered Fannie to give it weekly update on the risks it faces because of record low interest rates.
The Office of Federal Housing Enterprise Oversight said falling rates are threatening Fannie's finances enough to require special oversight. The order does not apply to Freddie, which is not under the same pressure because it finances its mortgages differently.
Fannie raises money by selling bonds on Wall Street, then uses the cash to issue mortgages. Homeowners are refinancing and paying off their mortgages faster than Fannie can pay back its bondholders. As a result, it could be paying more interest on some bonds than it is collecting on mortgages.
Fannie Mae stock fell $4.73 to $66.25 today and has fallen nearly 12 percent in the past week.
© 2002 The Washington Post Company
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