Memphis Business Index

US Stocks Sink in Biggest Drop Since 2008

U.S. stocks fell the most in 32 months this week, erasing the Standard & Poor’s 500 Index’s 2011 advance, as investors fled equities amid signs that the economy is stalling. An early rally faded yesterday as concern grew that S&P would cut the American credit rating , speculation which proved to be true after financial markets closed.

Bank of America Corp. (BAC) and Alcoa Inc. tumbled more than 13 percent, leading losses in the Dow Jones Industrial Average . Caterpillar Inc. (CAT) retreated 7.9 percent, while General Electric Co. (GE) sank 7.8 percent. Energy and materials companies in the S&P 500 fell 9.5 percent or more, the most among 10 industries, as every group declined. Losses exceeded 10 percent for 167 out of 500 companies in the index, and nine rose.

The S&P 500 slumped 7.2 percent to 1,199.38, the biggest weekly drop since November 2008 and the lowest level since Nov. 30, 2010. The Dow rose 60.93 points yesterday. For the week, it dropped 698.63 points, or 5.8 percent, to 11,444.61. The measures erased year-to-date gains that reached 8.4 percent and 11 percent as of April 29, respectively.

“It was disaster,” Michael Gibbs, Memphis, Tennessee- based chief equity strategist at Morgan Keegan Inc., said yesterday in a telephone interview. His firm oversees about $80 billion in client assets. “The weakness in the U.S. economy combined with the lack of confidence in European leadership made the perfect storm for investors.”

About $1.87 trillion has been erased from the value of U.S. equities since July 22, including the 4.8 percent plunge by the S&P 500 on Aug. 4 that was the biggest drop since February 2009.

Investors speculated the global economy may contract, driving them out of stocks and the euro and into havens such as Treasuries. European Central Bank President Jean-Claude Trichet tried to stamp out investor concern that the 21-month crisis will spread to Italy and Spain, the region’s third- and fourth- largest economies.

Stocks have slumped two straight weeks as reports on manufacturing and consumer spending showed the world’s largest economy is slowing. The S&P 500 fell 0.1 percent yesterday even after the U.S. Commerce Department said employers added 117,000 jobs last month, topping the median economist projection of 85,000 in a Bloomberg survey. The S&P 500 has retreated 11 percent since July 22, the biggest loss over the same amount of time since March 2009, when the equity bull market began.

African-Americans: Economic Battlefield ... - Smart City Memphis

African-Americans in Memphis are under siege.

That can only mean one thing: Memphis is also under siege.

Come to think of it, it also means that the region is under siege, despite the tone and content of suburban rhetoric to the contrary.

We’ve been writing in recent weeks about the economic realities that face Memphis in a post-recession, jobless recovery world.  To recap, the region is one of the 20 weakest-performing metros when it comes to recovery after the last recession, bouncing back much more slowly than after the 1981, 1990, and 2001 recessions, and the region will not return to pre-recession, or 2007, employment levels until the first quarter of 2016 (unfortunately we lost more than 20,000 jobs in the seven years before 2007.

We had hoped that things had bottomed out, but it seems we were wrong.  In the couple of weeks since our first post, Memphis got yet another one-two punch with news that the city’s unemployment rate continues to climb and the average wealth for African-Americans has dropped precipitously.

Devilish Problems

Even devil’s advocates are unable to summon up an alternative argument to the obvious: the Memphis regional economy is sputtering and nothing short of an engine overhaul is going to improve things.

We’ve deluded ourselves for decades into thinking that somehow we could ignore the link between race and poverty, that somehow we could succeed economically with 165,000 of us in intractable poverty, that somehow our commodities approach to economic development could win in the long-run, that somehow our lip service about minority business was enough, and that somehow the lack of population growth from in-migration didn’t matter.

This benign neglect and lack of strategic focus bring us to where we are today, and if the current situation is not the ultimate wake-up call, we can’t imagine what one looks like.

Today, about 47% of Memphis workers older than 16 years old are unemployed or not looking for work.  That’s a 12% unemployment rate plus 35% who are not in the labor force anymore.

Ouch

It’s the 35% that’s the structural problem that is essentially unchanged in the past 25 years.  The unemployment rate may go up or down but the percentage of people who aren’t looking for jobs remains about the same.   In other words, about 220,000 Memphians are not working, and to compound things, a significant percentage of Memphis workers are underemployed and say that they would like training for better jobs.

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