Rising Prices Put Pressure On Already Ailing Economy; Oil, Manufacturing Numbers Get Year Off to Bad Start
The price of oil briefly rose to $100 a barrel for the first time yesterday and fresh evidence emerged that the economy is slowing. To investors, the news raised the specter of stagflation, the toxic mix of stagnant economic growth and price inflation that made for hard times in the 1970s.</br></br>The Dow Jones industrial average fell 1.7 percent, or about 221 points, as investors moved money into safer investments.</br></br>"Not very fun, is it?" said James W. Paulsen, chief investment strategist of Wells Capital Management. "The news today just conjures up some frightening possibilities. Happy New Year."</br></br>After months of flirting with a price of $100 per barrel, one midday trade for crude oil on the New York Mercantile Exchange yesterday was for that much. The price of a barrel closed at $99.62. Gold closed at an all-time high of $860 an ounce for the February contract. The prices of wheat, soybeans and frozen concentrated orange juice were all up sharply, too. The dollar fell against the Japanese yen and other currencies.</br></br>And rising prices come as the nation's manufacturing sector appears to be contracting, according to the Institute for Supply Management, which surveys manufacturers. Its index, released yesterday, fell to 47.7 in December from 50.8 in November, a worse drop than even the most bearish analysts had predicted. A reading of more than 50 indicates expansion; a reading of less than 50 denotes contraction.