Specialist Patrick King, second from right, and others watch President Barack Obama’s remarks on a television monitor the floor of the New York Stock Exchange Tuesday, Aug. 2, 2011. The stock market stumbled again Tuesday and is on pace for its longest losing streak in two years.(AP Photo/Richard Drew)
WASHINGTON (AP) — The stock market is on its longest losing streak since the financial meltdown of 2008, confronted almost every day by fresh evidence that the economy is in serious trouble again.
The Dow Jones industrials declined more than 265 points Wednesday, their worst day in more than two months, and closed below 12,000 for the first time since June 24.
Investors sold all day after a report that the economy, which is barely growing and straining to produce jobs, is getting almost no help from consumer spending. Americans saved more in June and spent less for the first time in almost two years.
The big declines in the stock market came despite the formal end of weeks of uncertainty over whether Congress would raise the federal government’s borrowing limit.
President Barack Obama signed into a law a bill that raises the debt ceiling and promises more than $2 trillion in cuts to government spending over the next decade. The bill was passed by the House on Monday and by the Senate earlier Tuesday, 74-26.
But investors were more worried about the economy, and the sell-off only accelerated. It was the eighth consecutive daily drop for the Dow and seventh for the Standard Poor’s 500 index, in both cases the longest since October 2008.
During its eight-day decline, the Dow has lost 858 points, or 6.7 percent. The average closed at 11,866.62. The SP 500 closed at 1,254.05, and is now down slightly for the year.
“The market is starting to wonder where the growth is going to come from,” said Nick Kalivas, a vice president of financial research at MF Global. “It hasn’t hit the panic button yet, but that’s where we’re drifting.”
The spending decline in June came after a report last week that the economy grew at an annual rate of less than 1 percent in the first six months of the year — the slowest since the end of the Great Recession in June 2009.
Tuesday’s report showed that by June, Americans had only grown more cautious. They are faced with high unemployment, stagnant pay, sliding home values and other challenges.
“With gasoline prices high, incomes not growing and the craziness in Washington creating uncertainty, is it any surprise that people stopped spending?” asked Joel Naroff, chief economist at Naroff Economic Advisors.
The government said consumer spending dropped 0.2 percent in June. It was the first decline since September 2009. Consumer spending fuels about 70 percent of economic growth.
Part of the drop was because food and energy prices have declined a little after sharp increases earlier this year. Gasoline, for example, costs about $3.70 a gallon after the national average flirted with $4 earlier this year.
But Americans also cut back on major goods, such as cars, furniture and appliances. Those purchases help drive growth.
Incomes, which include Social Security checks and other government benefit payments, rose just 0.1 percent. That was the smallest gain since September. Wages and salaries fell.
People socked away more of their payments, perhaps because of increasing worries about the economy and job security. The personal savings rate rose to 5.4 percent of after-tax incomes, the highest since August 2010.
Automakers reported Tuesday that a lack of discounts and a continuing shortage of Japanese cars kept many buyers away and caused sales to sputter for a third straight month.
The only good news for the economy was that the government won’t default on its debt. But even the debt could ultimately slow the economy.
The legislation Obama signed Tuesday didn’t include an extension of a Social Security tax cut or long-term unemployment benefits. Both are set to expire by year’s end. And the deal reduces government spending at a time when the economy is growing too slowly to keep the unemployment rate from rising.
For now, most of the spending cuts begin in 2014 or later, so the damage to the economy will be limited.
Obama has pledged to fight to extend the Social Security tax cut and emergency unemployment benefits. But in Washington’s atmosphere of fiscal restraint, that may be difficult.
“We believe the economy will continue to struggle for some time, especially since there has been a move by the federal government toward fiscal consolidation,” said Paul Dales, senior U.S. economist at Capital Economics.
The economy added just 18,000 jobs in June, the fewest in nine months, and the unemployment rate is 9.2 percent, the highest all year. The government will issue the July figures Friday.
The sour news on incomes, spending and auto sales followed a report earlier this week that manufacturing in July grew at its weakest pace in two years.
Dales said he doesn’t foresee another recession but expects the economy to remain bumpy.
That’s a fine line for most Americans. Many of them still feel as if the economy remains in recession. At the same time, corporations have continued to report strong earnings and amassed huge cash stockpiles.
“What worries me is that businesses are deriving their strong earnings growth through productivity gains, limited wage increases and foreign activities,” Naroff said. “While that may be good for an individual firm, when most companies do that, income gains become so limited that spending and ultimately growth fades.”