FACTS ON POLICY: The State of the Economy—an Update

November 18, 2008

Oil prices are down 60 percent from their peak.

Oil—Oil prices have fallen drastically since peaking earlier this year. In early 2008, the price of crude oil hit $100 a barrel for the first time. Since then, oil prices have increased steadily, peaking at $147 a barrel in July 2008. In less than four months, the price has fallen 60 percent to $60 per barrel (as of November 6, 2008).

On a related note, the price of gasoline has also plummeted since its peak earlier this year. In mid-July, gasoline peaked at $4.05/gallon. In less than four months, the price of gasoline fell 42 percent, to $2.34, during the first week of November 2008.

In general, October 2008 was a month of large fluctuations throughout in the economy.

Manufacturing—During October 2008, production by the manufacturing sector fell to its lowest level in 26 years. The purchasing manager’s index (PMI), a composite index put out by the Institute for Supply Management that measures production, new orders, inventory, supplier deliveries, and employment in the manufacturing industry, fell to 38.6 in October. A PMI below 50 indicates a contraction in the sector; a PMI below 40 can indicate a contraction in the overall economy. For the past year, the PMI has hovered close to 50, before falling to 43.5 in September.

Dow Jones Industrial Average—Almost one year after the Dow peaked at 14,093.08 in October 2007, it fell to its lowest level since March 2003. In October 2008, the Dow fell to 8,175.77, a 42 percent drop from its peak. October 2008 has been one of the Dow’s most volatile months. On October 10, the Dow swung 1,019 points, the largest intraday swing in Dow history. Several days later, on October 13, the Dow gained 936.52 points (11 percent) in one day—the largest single-day gain in Dow history.

During this same time period (from October 2007 to October 2008), the Dow Jones Wilshire 5000, the index that represents the total U.S. stock market, lost $7.5 trillion, a 39 percent decline from its October 2008 peak of $19.2 trillion.

Dollar—Bucking other trends in the U.S. economy, the U.S. dollar has been gaining relative to the euro, which peaked in April 2008 at the exchange rate of $1.60/euro. Since then, the euro has fallen 21 percent relative to the dollar. In November 2008, the euro traded for $1.29.

Compared to the Japanese yen, however, the dollar hasn’t fared as well. In November 2007, the yen/dollar exchange rate was 115 yen/dollar. Since then it has declined to 99 yen/dollar, a 12 percent loss.

Personal Savings—Compared to last year, personal savings increased substantially in the second and third quarters of 2008. Aggregate national personal savings totaled $297 billion during the first quarter and $140 billion during the third quarter of 2008. By contrast, personal savings totaled $31 billion and $47 billion, respectively, during the second and third quarters of 2007.

Figure 1
Select economic indicators: October 2007–November 2008

Figure 2
Select economic indicators II:Oil and Gas Prices, October 2007–November 2008

Sources:

• Bureau of Economic Analysis, National Economic Accounts, “Comparison of Personal Saving in the National Income and Product Accounts (NIPAs) with Personal Saving in the Flow of Funds Accounts(FFAs)”(October 2008).

• Bureau of Economic Analysis, National Economic Accounts, “Personal Saving Rate.”

• Peter McKay and Tom Lauricella, Wall Street Journal, “Yes, Dow’s Record Was Year Ago Yesterday”(October 9, 2008).

• Google Finance, Dow Jones Industrial average historical data.

• Kate Gibson, MarketWatch, “U.S. Stocks Join Global Rally on Government Plans”(October 13, 2008).

• U.S. Department of Energy, Energy Information Administration, “U.S. Retail Gasoline Prices.”

• U.S. Department of Energy, Energy Information Administration, “Weekly U.S. Regular, All Formulations Retail Gasoline Prices (Cents per Gallon).”

• BBC News, “U.S. Manufacturing Hits 26-year Low”(November 3, 2008).

• Institute for Supply Management, PMI data:

Quiz Source Information:

• Same as fact.