COLUMBIA, SC (WACH, AP) -- The last thing a nervous consumer and a fragile economy needed was a confidence-killing nosedive on Wall Street Monday, but, that's exactly what happened.
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 2 1/2 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.
"There's a great amount of fear in the market right now," says Dr. William Hauk, an economist at USC's Darla Moore School of Business. "The Standard and Poor's downgrade is obviously bad for the government, but, it has other effects throughout the rest of the economy creating greater fear and uncertainty. That's rarely a good thing for the the stock market."Related Stories... Loftis: U.S. credit downgrade will not likely impact SC's rating Midlands gas prices decline with dip in cost of oil S&P downgrades US credit rating from AAA
And it isn't good for those who have a stock portfolio or retirement funds tied to the market. 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."
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.
David Kelly, chief market strategist with J.P. Morgan Funds, said he fears the market drop will become "a self-fulfilling prophecy ... and we'll just scare ourselves into a recession."
Tumbling stock prices could especially depress spending by wealthier consumers. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending. Luxury retailers that have helped sustain the economy could suffer.
Even before stocks began dropping last month, consumers weren't exactly exuberant. In June, they reduced spending for the first time in 20 months. The Rasmussen Consumer Index, drawn from a national survey, found Monday that 70 percent of Americans think the economy is worsening. That's up from 45 percent at the start of the year.
Despite Monday's precipitous drop, Dr. Hauk is advising people to exercise caution before doing anything drastic with their 401k accounts.
"I think the worst thing you can do is make a decision while you're in a state of panic," says Hauk.
He advises people to talk to their financial consultant before making any decisions about their finances so they can avoid turning their fears into reality.
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