Dejected investors sent stocks plunging Thursday, hurtling the Dow Jones industrials down more than 340 points after retailers and the government added to a mountain of bad economic news and devastated hopes for a late-year recovery.
The market was already nervous as it waited for the government to release its August employment report today. So news from the nation's major retailers that shoppers curtailed their spending last month due to higher gas and food prices came as a heavy blow.
Wal-Mart Stores Inc., the world's largest retailer, beat expectations because of its big discounts, but many teen retailers and luxury chains did poorly, a sign that consumers are spending mostly on essentials and putting discretionary buying on hold.
Meanwhile, the Labor Department said new applications for unemployment insurance rose by 15,000 last week from the previous week. That broadly missed expectations for a fourth-straight week of declines, heightening worries that the average American already feeling the effects of the weak housing market will have even less means to spend.
The four-week moving average of claims fell slightly to 438,000, down 3,250 from the previous week. Initial claims stood at 320,000 in the same week last year.
While Thursday's figure is below the six-year high of 457,000 reached in late July, economists attributed some of the earlier increase to an outreach program by the Labor Department to notify individuals about the availability of extended benefits.
The distortions from that program have likely faded, several economists said, meaning that the sluggish economy is increasingly to blame.
"We'll be above 6 percent unemployment by Thanksgiving," said Ken Goldstein, an economist at the Conference Board, a business research group based in New York. "We might even be there by Halloween."
In another sign of labor market weakness, the number of people continuing to receive unemployment benefits rose 6,000 to 3.44 million for the week ending Aug. 23, a five-year high.
That number doesn't include people who have exhausted their regular benefits and have requested extended assistance under an emergency program approved by Congress in June.
Furthermore, if the job market keeps deteriorating, it is tough for Wall Street to see a rebound in sight for the economy's biggest culprit: the tumbling housing market.
"You have to have a paycheck to pay that mortgage," said Craig Peckham, market strategist at Jefferies & Co.
The numbers released Thursday were a sign that despite some upbeat reports over the past month, the economy remains deeply troubled. Investors are not expecting any promising news in the August jobs report, particularly after the ADP National Employment Report said that private sector employment decreased in August by 33,000. Economists are predicting the government will report the eighth straight monthly payrolls drop, and a rise in the unemployment rate.
The market was so disheartened that it showed little reaction when the Institute for Supply Management said the service sector grew unexpectedly in August for the first time in three months as new orders increased and inflation moderated.
An economic recovery appears to be far off to investors and with the Dow down more than 15 percent for the year so far, they don't appear to be holding out for a significant upturn in stocks, either.
As investors fled stocks, they turned to the safety of government bonds, sending Treasury prices higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.62 percent from 3.70 percent late Wednesday.
Not even another drop in oil could console investors. After the government reported a lower-than-expected drop in U.S. gasoline and crude supplies, light sweet crude fell $1.46 to settle at $107.89 a barrel on the New York Mercantile Exchange. Crude is about $30 below its July 11 high of $147.27. Gold prices also slid Thursday.