Markets feeling the pain as the economy weakens

Dow dives on Cisco warning, retail sales

More Americans than anticipated filed first-time claims for unemployment benefits last week and total jobless rolls climbed to the highest level in 25 years, indicating further deterioration of the labor market. (Matthew Staver/Bloomberg News)

Wall Street plunged for a second day, triggered by computer gear maker Cisco Systems warning of slumping demand and retailers reporting weak sales for October. Concerns about widespread economic weakness sent the major stock indexes down more than 4 percent yesterday, including the Dow Jones industrial average, which tumbled more than 440 points.

The two-day plunge totals about 10 percent for the major indexes.

Comments from Cisco that it saw a steep drop in October orders and reports from retailers that consumers are skipping trips to the mall provided fresh evidence of the economy's struggles. While sales at Wal-Mart Stores Inc. benefited from bargain-seekers, some specialty retailers posted huge drops in monthly sales.

Adding to investors' list of worries, the Labor Department said the number of people continuing to draw unemployment benefits jumped to a 25-year high, increasing by 122,000 to 3.84 million in late October. It marked the highest level since late February 1983, when the economy was being buffeted by a protracted recession.

While new claims for unemployment benefits dipped by 4,000, to a seasonally adjusted level of 481,000 last week, the levels remain elevated. The findings added to the market's unease ahead of today's October employment report, a widely watched barometer of the economy's health.

"I think everybody kind of simultaneously - the consumers and businesses - is tightening belts so that's triggering a reasonably precipitous slowdown that's widespread," said Ed Hyland, global investment specialist at J.P. Morgan's private bank. "This is something that we haven't really seen, this level of this rapid and significant pullback both in the market and the economy."

Among retailers, Macy's Inc., Target Corp., and Gap Inc. posted sales declines. Department store chains Nordstrom Inc., Kohl's Corp., and J.C. Penney Co. also reduced their profit forecasts. Wal-Mart remained a bright spot as sales at stores open at least a year climbed 2.4 percent.

Overall, October same-store sales fell 0.9 percent, the first drop in seven months, and 4.2 percent excluding Wal-Mart, the International Council of Shopping Centers said yesterday, based on the results of 37 chains. The trade group said holiday sales may climb 1 percent, less than the 1.7 percent it had forecast.

Natick-based BJ'S Wholesale Club Inc. said October same-store sales rose 10.2 percent, partly on an unexpected boost from gasoline sales. For the four weeks ended Nov. 1, gasoline sales contributed a gain of 3.6 percent to same-store sales.

But discounter TJX Cos., based in Framingham, said same-store sales fell 6 percent in October, more than analysts predicted, as international results were hurt by a stronger US dollar. Excluding the drop in exchange rates, same-store sales fell 1 percent.

The continuing increase in jobless claims also contributes to the fall in sales among retailers nationwide. As fewer people leave the jobless rolls and the newly unemployed are added, workers may be having a harder time finding jobs than in previous weeks.

Democrats in Congress are pushing to include an extension of unemployment benefits in a new stimulus package, which could be taken up this month. Benefits last 26 weeks.

Congress approved a special 13-week extension of benefits in June, and the Labor Department said about 773,000 people claimed benefits through that program for the week ended Oct. 18, the most recent data available. That's in addition to the 3.84 million that are receiving benefits through the traditional program.