Oil, GM Wallop Stocks

The problems in the job market are related to the ailing auto sector, said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. He said the Federal Reserve should be focusing on slowing U.S. growth, rather than trying in vain to stamp out inflation. He said the economy has been shedding jobs for months now and that the U.S. is in for a long-term slowdown.

"There are times when it makes sense to raise interest rates to do something about inflation. This is just not one of them." Developing a program to alleviate the cost of phasing out oil-based automobiles will create manufacturing jobs and stimulate the housing market, Morici said. Historically, the government has helped industries make necessary technological transitions, he said.

A revitalized, fuel-efficient auto market could create jobs and spur demand for suburban homes, Morici said. As it stands now, though, "The suburbs will become obsolete. We're not going to get more suburbanites signing up at these price levels and these levels of mileage."

The Census Bureau said that May factory orders rose 0.6%, ahead of analysts' expectations of a 0.5% increase and down from a 1.3% increase in April.

Treasuries were rising. The 10-year note was up 10/32 to yield 3.97%, and the 30-year added 20/32, yielding 4.51%. The dollar was gaining on the euro and the pound, but softening against the yen.

Abroad, markets were lower. London's FTSE, Japan's Nikkei and Hong Kong's Hang Seng were all down at least 1%, while Frankfurt's DAX was off 0.2%.