Consumers Can't Carry the Load Anymore

The end of the month and quarter provided little respite for stocks. In fact, quite the opposite early Monday as stocks tumbled precipitously at the opening bell and were struggling to recover at midday.

As of 2:06 p.m. EDT, the Dow Jones Industrial Average was down 1% to 7626.33 after having traded as low as 7460.78, below its July 24 intraday low of 7532.66. Elsewhere, the S&P 500 was down 1.1% to 818.44 after having traded as low as 800.20, and the Nasdaq Composite was down 1.6% to 1180.13 vs. its early low of 1160.07.

As stocks struggled, Treasuries flourished. The price of the benchmark 10-year Treasury note was recently up 16/32 to 106 12/32, with the yield falling to 3.60%. Meanwhile, the price of the 2-year note was up 5/32 to 100 10/32, with the yield falling to 1.71%. The 2-year note's yield being below the 1.75% fed-funds rate is an indication that market participants believe the Federal Reserve will lower rates, likely prior to its next scheduled policy meeting on Nov. 6.

But, of course, the fed funds rate has been at 1.75%, a 40-year low, since December 2001. That has prompted consumer spending -- namely on autos and housing -- but has done little to revive business expenditures. Monday's news that personal spending rose just 0.3% in August, vs. 1% in July and expectations for a rise of 0.5%, raised concern the previously profligate U.S. consumer may finally be retrenching. Separately, the Chicago Purchasing Managers survey for September was weaker than expected, showing contraction in the region's manufacturing for the first time since January and signaling no recovery in business spending.

In another sign of the economy's sluggishness, Wal-Mart (WMT Quote), the nation's largest retailer, lowered its guidance for September sales growth to 3% from 4%. Separately, shares of Walgreen (WAG Quote) were sharply lower after the drugstore chain reported slightly lower-than-expected earnings and said it would increase promotions for the current quarter.

"Something's wrong with the economy," Dallas Fed President Robert McTeer said in a speech to the National Association for Business Economics this morning, according to wire service reports.

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