While the Treasury Department announced a complete U-turn earlier today and abandoned its plan to buy toxic mortgage assets, Wall Street kept going in the same direction: Down.
Major indexes dropped more than 4 percent today with more companies reporting more losses as more consumers decide that now may not be the time to buy beyond the basics.
"[The year] 2009 is going to be the first year since 1980 that we see a drop in consumer spending," said Marshal Cohen, chief industry analyst with the market researcher NPD Group.
The Dow Jones industrial average lost 411.30 points, or 4.73 percent, to close at 8,282.66. The Nasdaq lost 81.69 points, or 5.17 percent, to close at 1,499.21 and the S&P 500 lost 46.65 points, or 5.19 percent, to close at 852.30.
"We are in a severe recession that will only get worse," said Charles Myers, chief of U.S. equities at Foxx-Pitt Kelton. "Every morning, a new company in a different sector announces more bad news."
Electronics retail giant Best Buy today cut its sales outlook for the upcoming holiday shopping season and now anticipates a sales decline of 5 percent to 15 percent for the November-to-February period, compared with a year before.
"In 42 years of retailing, we've never seen such difficult times for the consumer," said Brian Dunn, Best Buy president and chief operating officer. "People are making dramatic changes in how much they spend, and we're not immune from those forces."
The company's stock lost 8 percent of its value and closed at $21.97 a share.
Wall Street also fell after Treasury Secretary Henry Paulson announced that the government will not use the $700 billion Congress allocated through the Troubled Assets Relief Program, or TARP, to purchase mortgage assets.
"Our assessment at this time is that this is not the most effective use of TARP funds," he said.
Later, the Treasury secretary defended reversing course on how to use the money provided through the TARP program.
"I will never apologize for changing the approach when facts change," he said. "We moved quickly and powerfully to address the situation."
Instead, the department will continue to focus on providing taxpayer money to purchase stakes in some of the nation's banks in order to provide them with money to lend and thereby stabilizing the financial system.
Paulson also indicated that the government could use the funds to support the nonbank financial sector that provides nearly 40 percent of the credit consumers rely on for credit cards, auto loans and student loans. He also said the department continues to explore strategies to reduce foreclosures.
But one industry unlikely to benefit from the changes announced today is the failing auto industry. "The automakers are important to us and a key part of the manufacturing industry," Paulson said. "I've said very clearly that we need a solution, but it has to be one that leads to viability and the intent of the TARP was to deal with the financial industry."
The White House today said it wants the auto industry to succeed but stressed that Congress must act. "We have gone as far as we can with the authority Congress has given in order to help industries," White House spokeswoman Dana Perino said.
As more signs indicate that both the U.S. and the global economies continue to suffer, oil prices have plunged, as have gasoline prices. And the Energy Department now forecasts gasoline consumption will drop 3 percent for the year. For 2009, total oil consumption is expected to decline by 1.3 percent.
Oil prices closed today at $56.16 a barrel, dropping $3.17, or 5.3 percent.