- The Washington Times - Monday, August 30, 2004

NEW YORK (AP) — An unsettling report on consumer incomes set off a spate of profit-taking on Wall Street yesterday as investors worried that a tepid economy would erode companies’ third-quarter earnings. Another drop in oil prices failed to shake the market’s gloom.

While investors were cheered by the Commerce Department’s report of a strong rise in consumer spending for July, nearly flat growth in personal incomes and a handful of profit warnings for the third quarter made investors nervous. The news prompted them to cash in their gains in the wake of two weeks of advances.

Trading volume was again extremely light as many on Wall Street refused to make large moves until the Republican National Convention concluded without incident. Many investors also awaited the government’s August employment report, expected Friday, hoping for signs that the economy was emerging from a sluggish summer.

The Dow Jones Industrial Average fell 72.49, or 0.7 percent, to 10,122.52.

Broader stock indicators were moderately lower. The Standard & Poor’s 500 index was down 8.62, or 0.8 percent, at 1,099.15, and the Nasdaq Composite Index dropped 25.60, or 1.4 percent, to 1,836.49.

The Commerce Department said consumer spending rose 0.8 percent in July, better than the 0.7 percent growth economists had expected and more than making up for the 0.2 percent drop in June. But despite the increase in spending, Americans’ incomes rose by only 0.1 percent in July, far less than the 0.5 percent forecast by economists and down from a 0.2 percent rise in June.

While consumer spending bodes well for short-term economic growth, the anemic rise in incomes cast a pall over longer term prospects because rising income is key in overcoming inflation. Americans are less likely to spend freely if they are concerned about the size of their paychecks.

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