Stocks Fall Sharply on Consumer Spending Worries

If anyone needed the confirmation, it's official.

The economy is in recession.

Traders work on the floor of the New York Stock Exchange, Monday, Dec. 1, 2008.

(Richard Drew/AP Photo)
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And even if we knew it, even if the Bush administration and investors tried to avoid saying it, receiving official word of a year-long recession pushed the markets down more than 7 percent today, practically erasing all of last week's gains.

"The R word is something that we haven't mentioned and don't want to mention. But finally it's come to light," said Jonathan Corpina, senior managing partner with Meridian Equity Partners. "Now, we're actually saying we are in a recession. I think the psychological effects of that being stated is definitely having an effect on this market."

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The Dow Jones lost 679.95 points to close at 8,149.05, down 7.7 percent. In one day, the Dow gave up nearly everything it gained last week when the blue chip index closed up 782.62 points. The S&P 500 closed at 816.21 losing 80.38 points, dropping 8.93 percent. The Nasdaq lost 137.50 points or 8.95 percent to close at 1,398.07.

Despite early indications that retail sales were better than expected over the Thanksgiving weekend, investors were in a sour mood from the start of trading.

"In reality, we know that going forward into this holiday season that we're not going to get the retail numbers that we were looking for," said Corpina.

Adding fuel to negative sentiment on Wall Street, the government announced that construction of new homes and businesses fell 1.2 percent in October, more than expected. And a measure of the manufacturing sector also fell more than expected to levels not seen since 1982.

Nigel Gault, chief U.S. economist with IHS Global Insight, wrote that the manufacturing report "is consistent with other economic indicators that show the economy contracting at an exceptionally rapid pace."