Plunge on Wall Street threatens to spook consumers

Date: Aug 09, 2011

Plunge on Wall Street threatens to spook consumers

WASHINGTON -- It's the last thing a nervous consumer and a fragile economy needed: a confidence-killing nosedive on Wall Street.

Americans struggling with lean wages, job insecurity and high gasoline prices have seen a 15-percent plunge in stock prices shrink their 401(k) accounts over the past 2½ weeks. When consumers feel less wealthy, they're less likely to buy new furniture, new appliances or new cars. And their spending drives about 70 percent of the economy.

Murray Specktor, 58, a retired Northwest Airlines pilot, says he has enough money tucked away to support himself in retirement. But after the stock market's plunge, he's taking further precautions.

"No expensive meals out," he says. "Entertainment's going to get cut back. Until I see where this is going, I've just got to preserve capital and try to get my comfort level up."

The drop in the stock market, through Friday, could cut overall spending by $140 billion, or 1.3 percent, over the coming year, says Paul Dales, senior U.S. economist at Capital Economics. Dales forecasts that the stock market turmoil could reduce the economy's annual growth rate by half a percentage point through 2012.

There isn't much to spare. In the first half of the year, the economy grew at a scant 0.8 percent annual rate. That helps explain the dive on Wall Street: Stocks are falling partly on fears that the nation could slip back into a recession.

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