By Ian Swanson - 08/12/10 02:23 AM EDT
Wall Street gave a thumbs-down to the economy as the Dow Jones slipped into the red for the year.
The Dow Jones tumbled 265 points on Wednesday amid growing worries that the world economy is weakening. The pessimism from traders came one day after the Federal Reserve downgraded its outlook for the economic recovery amid fears of a double-dip recession.
Wednesday's tough day on the markets is the latest piece of difficult news for the White House, which is trying to promote last year's $787 billion stimulus through a series of events it has dubbed the "recovery summer."
President Obama, facing a difficult election environment where his party’s majorities in Congress could be lowered or lost, on Wednesday reiterated that his administration is doing everything it can to turn the economy around.
He also insisted the worst of the recession is over as he signed legislation suspending duties on hundreds of imports. Challenges faced by the nation have been confirmed not only by a steady stream of data since last spring, but through a series of crises in Europe that roiled markets and stoked fears of a double-dip recession earlier this summer.
"So while we have fought back from the worst of this recession, we've still got a lot of work to do," Obama said. "We've still got a long way to go. And I'm more determined than ever to do every single thing we can to hasten our economic recovery and get our people back to work."
Obama, who will meet with his senior advisers on Thursday, touted the tariff legislation as a boon to manufacturing that would ensure U.S. companies would pay less for imports for their products. He also said it would help U.S. businesses and workers by increasing exports.
But the reaction on Wall Street to the Federal Reserve’s announcement on Tuesday suggests doubts that the economy is headed for a strong recovery. The nation’s economy grew by only 2.4 percent in the second quarter, and the nation only added 71,000 jobs in July.
White House press secretary Robert Gibbs on Wednesday said it will take "quite a bit of time" to move on from the recession given the collapse of the financial industry and the huge housing crisis. He also acknowledged that there's no doubt the trajectory of the economy has changed since April, when it appeared a recovery was under way.
One of the factors in the gloomy day on Wall Street was an unexpected jump in the U.S. trade deficit. The Commerce Department reported Wednesday that the U.S. trade gap had hit its highest level since October 2008.
Exports declined and imports increased to a record high as the trade deficit expanded to $49.9 billion, an 18.8 percent increase in June compared to May. Imports grew 3 percent while exports dropped 1.3 percent, the most since April 2009, the Commerce Department reported Wednesday.
Some analysts attributed the day’s events to disappointment on Wall Street that the Federal Reserve did not give a stronger signal of its intention to offer more support for the economy.
The Federal Reserve on Tuesday announced it would use its proceeds from mortgage-backed securities to buy Treasury debt, but this was seen less as a boost from the Fed and more as a statement that it will continue with its current policies.
While that was a change for a central bank that many felt was ready to start winding down programs intended to boost the economy, it may not have met hopes on Wall Street.
“They were expecting that the Fed would be much more accommodative,” said Douglas Roberts, founder and chief investment strategist for ChannelCapitalResearch.com.
Obama met which Lawrence Summers, his chief economic adviser, on Wednesday and talked through some scenarios about the global economy, Gibbs said. "And I think he will continue to talk to the team about any efforts that they think are necessary to ensure that we continue positive job growth, that we see positive economic growth," Gibbs concluded.