Stocks tumble despite uptick in consumer spending
10/2/2009NEW YORK - Stocks began the fourth quarter with a slide as pessimism about the economy gripped investors.
The Dow Jones industrial average and the Standard & Poor's 500 index posted their biggest drops in three months after reports on manufacturing and the labor market rattled the market, overshadowing good news on housing and consumer spending.
The Dow fell 203.00 to 9,509.28, marking the biggest fall since July 2. The broader S&P 500 index fell 27.23 to 1,029.85, and the Nasdaq composite index dropped 64.94 to 2,057.48.
"Fear is still very, very fresh in people's minds and the magnitude of the potential disaster that we had last September through March, I think, still has investors pretty skittish," said Darell Krasnoff, managing director of Bel Air Investment Advisors in Los Angeles.
Economic reports yesterday contributed to the market jitters.
The U.S. Labor Department said initial claims for unemployment insurance rose to a seasonally adjusted 551,000 from 534,000 in the previous week.
Wall Street economists had expected an increase to 535,000, according to a survey by Thomson Reuters.
The increase comes after three weeks of declines. Weekly claims have been trending down since the spring, but the decline has been painfully slow. The four-week average, which smooths out fluctuations, dropped to 548,000, about 110,000 below its peak in early April.
"This is a bit disappointing but not unduly alarming," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note to clients. The increase "leaves the downward trend in claims intact."
Meanwhile, consumer spending, which accounts for 70 percent of the nation's total economic activity, jumped in August by the largest amount in nearly eight years even though personal in-comes continued to lag.
The Commerce Department said consumer spending rose 1.3 percent in August, the largest monthly advance since October, 2001, when the economy was shaking off the impact of the terrorist attacks and even better than the 1.1 percent gain that had been expected. But incomes edged up 0.2 percent, the same as in July.
Separately, a private trade group said manufacturing activity expanded for the second straight month in September, but at a slightly slower pace than in August. The Institute for Supply Management's index of manufacturing activity was 52.6, down from 52.9 in August. Economists expected a reading of 54. Figures above 50 indicate the sector is expanding.
In another report, construction spending rose 0.8 percent in August, much better than the 0.2 percent drop economists had expected. It reflected a 4.7 percent rise in private residential activity, the biggest one-month increase since November, 1993. Spending on other projects dropped in August.