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The Associated Press
Tuesday June 05, 2001

NEW YORK — Stocks moved higher Friday as more dismal economic news raised hopes that the Federal Reserve will aggressively cut interest rates. 

The Labor Department reported that the nation’s unemployment rate shot up to 4.5 percent in April, the highest level in 2 1/2 years. The figures also showed that businesses slashed their payrolls by the largest amount since the recession in 1991. 

At the White House, meanwhile, press secretary Ari Fleischer said President Bush “remains very concerned about the strength of the economy.” He added that the Bush administration believes it’s “entirely possible” that the government’s recent 2 percent reading for the nation’s first-quarter economic growth will be revised downward. 

Stocks rose on expectations that the economic news will prompt Fed policy makers to cut interest rates a half a percentage point when they meet May 15. Earlier, the odds had been on a quarter-point cut. 

Ed Yardeni, chief investment strategist for Deutsche Banc Alex. Brown in New York, said it was extremely rare for the White House to predict a revision in a key economic measure such as the 2 percent gross domestic product reading. He suggested the Bush administration “is positioning here for a quick passage of the tax cut” favored by the president. 

He said the employment figures “clearly indicate economic weakness is spreading to the consumer sector” and said that increased the likelihood of a half percentage point, or 50 basis point, interest rate cut by the Fed. 

Scott Marcouiller, a vice president and market analyst at A.G. Edwards & Sons of St. Louis, concurred. 

“The odds of a 50 basis point cut increased dramatically in the last 48 hours,” he said. 

The size of the increase in the unemployment rate and the cut in jobs surprised many analysts. They were predicting the unemployment rate would rise to 4.4 percent and that businesses would add jobs during the month. 

— The Associated Press 

The figures worry investors because weakness in employment tends to depress consumer spending. That, in turn, could prolong the economic weakness that has been evident in the economy since late last year. 

Among those taking big hits in early trading were Wind River Systems Inc., with its shares dropping $2.47 to $23.71. The company late Thursday cut its first-quarter earnings projections to a range of 4 cents to 6 cents a share. It cited a significant slowdown in customer spending and said it will cut its work force by up to 15 percent. 

Advancing issues slightly outnumbered declining shares on the New York Stock Exchange, where volume came to 477.98 million shares compared with 502.33 million at the same time a day earlier. 

The Russell 2000 index, which measures the performance of smaller companies stocks, was down 0.42 at 485.23. 


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